Two headlines caught our attention yesterday. First, the IEA stated that they did not see any “unusual” behavior by U.S. refineries that would indicate price manipulation. The second, the U.S. Federal Trade Commission (FTC), at the behest of Senator John D. Rockefeller (D), is launching an investigation into the oil and gasoline markets.
Here is what we think the FTC is going to find… nothing, zilch, nada, no evidence whatsoever of market manipulation. After all, the days of Standard Oil are long gone. We are pretty sure Senator Rockefeller is aware of that.
For a country that spends around $7 million (of money it does not have) every minute, we think the FTC has more pressing affairs to attend to rather than going on an election-year goose chase.
According to a press release from his office, Senator Rockefeller is “… not convinced that these price increases were necessary or reflected true market conditions.”
So let’s get this straight, the Senator does not think the increase in gasoline for Americans was “necessary” or “reflected true market conditions.” Hmm, that is interesting; NATO has been bombing Libya — a country with the largest proven oil reserves in Africa — for months, and the best we can say about the situation is that it is a stalemate. Yet Senator Rockefeller cannot understand why this might have a bullish impact on oil prices?
That’s funny, because the Brent market certainly seems to believe that the disappearance from the global market of 1.5 MMbbl/d of high-quality Libyan oil is indeed bullish. To this effect, this missing oil is being replaced with Brent-indexed crudes. As such, the front of the ICE Brent term structure has shifted from contango to backwardation since February.
Perhaps Senator Rockefeller missed all of those unplanned refinery outages in PADDs II and III this winter or maybe he is not aware of all of that ethnic violence in Nigeria – Africa’s largest oil producer and the country with the continent’s largest proven oil reserves behind Libya. Maybe he also missed the collapse of the U.S. dollar, Iran’s expressed willingness to exploit the Sunni/Shia rift (see Egypt) and the debacle at OPEC’s latest meeting.
Perhaps the Senator did not miss these events, yet he still thinks they do not warrant a risk premium? Perhaps, but then again as we wrote to clients in today’s issue of The Schork Report, perhaps the Senator is just full of it.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.