$4 Per Gallon: Beating The Oil Drum

America and oil. Perfect together.

Americans are being warned about $4 gasoline at the pumps as an impending and potentially persistent reality. In actuality we’re really being sold on this proposition by the same people who are obfuscating the facts behind what is essentially a looming consumer economic crisis. The triumvirate of the federal government, oil companies and major financial institutions are at the core of disseminating information about, and controlling the pricing of, oil and the varying distillates it produces. I use the term “triumvirate” loosely as it presupposes a separation among the three entities when it has become increasingly apparent they are fused into a singular, inseparable juggernaut where players move freely through revolving doors interconnected through a labyrinth of commissions and exchanges that empty into the special bureau of greed and codependence.

Listen closely to what it is we’re being sold. We’re being fed a barrage of reports about two major drivers of oil prices: demand and unrest. The latter refers to the remarkable and unrelenting spread of democratic uprisings in the Middle East and Northern Africa. While the situations in Egypt and Tunisia had little immediate impact on oil prices because they are marginal players in the energy field, Libya and Bahrain have had a dramatic effect on oil prices because they are fundamentally oil-based economies. (Bahrain, by the way, is half the length and width of Long Island.)

Yet not only does the United States maintain a military base in Bahrain where demonstrations have been organized and peaceful after a shock of initial bloodshed, but Libya produces surprisingly little oil considering the ripple effect the burgeoning civil war is causing. Moreover, the war is being funded by the continuance of oil production operations, which neither side can afford to sabotage to the point of paralysis. The upshot there is that of the 2 percent of global oil production Libya claims, most of it will continue to flow. That being said, suppose for a minute it is halted completely. How could losing temporary access to 2 percent of global production account for a 33 percent increase in pricing? It doesn’t, which leads us to the demand question.

The purported rise in global demand is being attributed to the growth in demand from developing economies and the global economic recovery. Yet in real GDP terms and with respect to indicators such as manufacturing, shipping, job creation – in short, anything that isn’t the Dow Jones Industrial Average – the global economy is still limping toward pre-recession, pre-housing bubble crash levels when oil hovered around $70 per barrel. And even at this level, several commodities experts and economists theorized that as much as 40 percent of the $70/barrel figure was pegged to speculation in the financial markets and not market forces such as supply and demand.

In regards to new demand from developing nations, new areas of production in Canada and Africa as well as deep-sea, offshore drilling are keeping pace with demand as evidenced by the sustained levels of reserves around the globe. Even the Obama administration, which has stated that tapping our own strategic oil reserves is a viable option to increase supply and suppress oil prices, admits in the same breath that supply isn’t the issue. This is hocus-pocus to distract us all from what the actual issue is. For clarity on the real reason behind the spike in oil prices, one need look no further than the mini-oil crisis in the summer of 2008 and the federal government’s response in the months, and now years, that followed.


When the price of a barrel of crude oil topped $145 in 2008, rampant speculation was ultimately blamed for the anomaly but only after the major banks and trading institutions could no longer blame increasing demand with a straight face. They simply pushed that line too hard to keep up the ruse. If ever there was even a question about the role of speculation and the government’s willingness to cover for the big banks, all was answered in my mind by the U.S. government response, or lack thereof.

Federal regulators made a big fuss over the creation of more stringent regulation on the commodities exchanges by moving oil trading from opaque over the counter (OTC) exchanges to more “legitimate” exchanges with greater transparency. Or so we were told. The big winner in this move: The Intercontinental Exchange, or the ICE. The ICE is aptly named because any attempt to investigate this exchange ends up cold. Here’s where it gets interesting and perfectly illustrates the symbiotic relationship between the federal government and big banking.

The most helpful context I can place this explanation in is to stress the point that the ICE is a business. It was established for the purpose of providing an efficient electronic trading infrastructure for energy commodities. Trading energy futures before the Atlanta-based ICE was established was confusing, inefficient and antiquated. But the ICE was a small operation until then-President George W. Bush granted it status as a foreign exchange because it purchased a trading desk in London even though the entire trading infrastructure was based in Atlanta. Foreign exchanges aren’t subject to the same oversight as domestic ones. So even though the Commodities Futures Trading Commission (CFTC) interacts with and governs some of the procedures at the ICE, no one can actually see who is doing the trading. This one small regulatory change put the ICE on the map and set the groundwork for one of the greatest, yet most obscure, con jobs ever pulled on the American people.

I call it a con job because the ICE falsely professes to be a bastion of transparency, going so far as to describe itself as “an alternative to the previously fragmented and opaque markets.” So let’s be transparent about this supposed transparency the ICE purportedly affords. It has nothing to do with the ability to witness transactions or those who are doing them, but to simplify the transaction process. It’s the equivalent of your bank offering online banking for your checking account. It’s fast and easy but doesn’t mean your neighbor can see you doing it.

Now consider who is doing the trading. Are you? My guess is no.

The only ones with the financial strength to risk betting on oil futures that would also benefit from anonymity are financial institutions and oil companies themselves. And that’s precisely what they’re doing. Now that you’re armed with an understanding of the fundamentals behind the commodities market, take a gander at the incestuous family tree of oil trading. Once you follow the money you’ll never again question why prices at the pump are so high.

• The ICE is a public, for-profit business traded on the New York Stock Exchange that takes in almost one billion dollars in transaction fees from commodities trading and has performed better than all other major exchanges in recent years.

• The founders of the ICE are Morgan Stanley, Goldman Sachs and British Petroleum (now BP)

• Morgan Stanley is not only a financial institution. If you add up their direct holdings in the oil business, they would be one of the world’s biggest oil companies.

• Gary Gensler, chairman of the CFTC, is a former Goldman Sachs partner

• Jeffrey Sprecher, chairman and CEO of the ICE, is on the CFTC Energy and Environmental Markets Advisory Committee alongside representatives from JP Morgan, Morgan Stanley, Goldman Sachs and Merrill Lynch

The takeaway: The government has cleared the way for banks and oil companies (sometimes one in the same) to determine the price of oil by investing large sums of money no one can see on a trading exchange they own and direct.

If you follow this logic, dig this scenario. (Or “digg” it if you’re reading this online – thanks in advance for the plug). Instead of cracking down on this legalized price-fixing and collusion scheme, the government rewarded everyone involved. In 2009 it granted the ICE the ability to trade credit default swaps (remember those?) in order to provide “more transparency” to these troubled investment vehicles by moving them from OTC exchanges. Sound familiar? The ICE got this part of their exchange up and running in 2010 ahead of schedule.

With the regulatory wind of the White House at their backs and a gullible public duped by propaganda about unrest in the Middle East being responsible for the spike in oil prices, Wall Street is having its way with us all.

In case you were wondering what their take on this sorry state of affairs is, Morgan Stanley analysts David Greenlaw and Ted Wieseman offer the following sentiment: “Of course, the increase in oil prices transfers income (and wealth) to oil producers, and the effect on global growth will depend on how the producers spend their windfall.” A rhetorical question if ever there was one; after all, when’s the last time ExxonMobil cut you a check? 

So the next time you’re gritting your teeth at the pump and cursing the day you walked into the SUV dealership, you’ll know who’s really taking your money. Unfortunately, you’ll also realize that there’s not a damn thing you can do about it. 


Author: Jed Morey

Jed Morey is the publisher of the Long Island Press, LI's Cultural Arts and Investigative News Journal. The Press has a monthly circulation of 100,000, and www.longislandpress.com, welcomes more than 500,000 unique visitors every month. He serves on the board of the Holocaust Memorial and Tolerance Center in Nassau County, as well as the President's Council of Big Brothers and Big Sisters of Long Island. In addition to the contributions on this blog, Morey authors a column for the Long Island Press titled "Off The Reservation" and is a staunch advocate for Indian rights. The column was voted Best Column in New York by the NY Press Association in 2010 and third overall in the nation among alternative publications by the Association of Alternative Weeklies in 2012. Morey lives in Glen Cove with his wife, Eden White, and their two daughters.

6 thoughts on “$4 Per Gallon: Beating The Oil Drum”

  1. What about the 2011 oil scandle?? Stevie Chu and Vic Der at the DOE sold the entirety of the NE home heating oil reserve in Feb. 2011, at rock bottom bargain basement prices, to, among others, Morgan Stanley, while, at the same time, we, in the NE were freezing, burried in snow, and paying through the nose ($3.70 per gal).

    A million barrels (not crude, but home heating oil) sold for $114 per barrel. Do the math… there are either 47 gallons or 55 gallons in a barrel.

    The Chinese bailed out Morgan Stanley in 2007….and have $$$$ to spend for cheap oil.

    Then, Morgan Stanley comes out and says their boycoting Libyan oil….of course they are, they bought my oil from OUR government at a much better price, then sold it to the Chinese for big bucks.

    So, when the NE needed the oil to be released…..too bad, suckers, we sold it.

    Now THAT’S a scandle.

  2. On or about April 26, 2011, our US oil companies will release info on their 1st Quarter profits. They will be astronomical. Even highte than those declared by oil companies in 2008, the last time they skinned and hoodwinked us.

    Our President, then campaigning for office, correctly chided Bush and Cheney for letting that happen. (No mystery there, they both had a ton of oil stocks). Obama stated that if elected, he would institute a windfall tax and end oil subsidies.

    It is now 2011. The oil companies have done it to us again. They are still getting 4 billion a year in subsidies, THERE IS NO WINDFALL TAX, but we DID elect Mr. Obama as our President.


  3. Eric Holder will have an easy time investigating oil company price gouging. Look at the numbers.

    The price per gallon for crude oil rose $0.18, between Nov. 2010 and the present. The price of gasoline rose $1.25/gal. The price of home heating oil rose $0.80.

    The oil companies began predicting $4 per gal back in Nov. 2010. There was no middle east turmoil in Libya. Corporate plan with intent to defraud the public?

    Corruption, fraud and oil company greed were found to be the root cause for pump pain in 2008 (which caused unemployment to rise, then, to 6.1%) so why, in 2011, should we expect the root causes to be any different in 2011?*

    *It is, however, a major problem that unemployment, now, is still at 8.8%…….can we really afford it to go back to 10%?

    Pay attention, folks, US oil companies will be declaring 1st Quarter 2011 profits, next week. Then, ask yourselves, retorically, gee, if the cost of oil was up, and the supply was down, how DID they make all that profit?
    The economics just don’t fit that line, do they?????

  4. 1st Quarter 2011 Oil profits are out!!!!! Wave good bye to your money, your jobs, your life, your family’s lives, and be sure to move to a warmer climate before next winter.
    The Government will let you freeze to death….that’s if you havent starved to death before then. All of your food is trucked to the store. Trucks use gas. You will not be able to affort even crackers if gas goes to $5.

    The oil companies are traitors to humanity…they make the banks look like a nice bunch of folk.

    So, where are the protests???

    Remember, gas prices went down in 2008 after Obama got elected, because he promised to institute a Windfall tax.

    Where is it in 2011?????

    When the GOP and the Tea fools got in, Nov. 2010, gas prices started to move up, up, up.

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