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XMFSinchiruna (27.06)

Unbelieveable!! U.S. House of Reps passes bill authorizing Justice Dept to Sue OPEC!!

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May 20, 2008 – Comments (28)

I can hardly contain my shock and consternation after reading the article below!  If they do actually get this past a presidential veto, as the voting margin suggests, and sign this into law, this measure will backfire on American interests with unbelieveable force.  First of all, while Bush was in Saudi Arabia requesting a production increase, various media outlets documented quite clearly that Saudi Arabia is extracting their oil at near-capacity rates.  I have not seen comparable information from other OPEC countries, but I have every reason to believe that these countries are taking advantage of present prices and pumping their way to profits.

I don't claim to have a full understanding of what portion of the present price of oil is attributable to supply and demand, and what portion is speculative, but I do know that OPEC is not the only arbiter of price.  Futures traders on the commodities exchanges and non-OPEC oil producers also have a say, and if present prices were that far out of whack with market forces, then market forces would ostensibly correct the situation.

OPEC has increased production quite substantially in 2008 vs. 2007:http://www.mees.com/Energy_Tables/crude-oil.htm  From an average of about 26 million bpd in 2000, the rate has grown to touch the 30 million bpd mark in early 2008.  In any event, present production is very clearly above historical levels, so to suggest that prices are due to deliberate price manipulation is quite an accusation... and doesn't exactly promote friendly diplomatic relations with those OPEC nations with whom we still have some workable relationship.

Of course, OPEC is in a powerful position because they have so much of something we need so very badly.  A.) That's our own fault for failing to develop alternative fuels after the 1970s when the potential for future energy crises should have been readily apparent to any but the most short-sighted politicians, and B.) The price of oil is largely our own doing because of mismanagement of our own currency... the fall of the dollar is the biggest contributing factor to the rise in oil prices, and the latest action by the U.S. House indicates there is no understanding of this fact on capitol hill.

If we bring action against OPEC interests on the basis of this proposed legislation, watch what happens to the price of oil.  They can tighten the spigot at the drop of a hat, so this brazen act of cowboy diplomacy creates the real danger of a retaliatory round of financial warfare where, unfortunately, innocent consumers of the world are the unwitting fodder for fire.  Get ready for $200 oil, because after today's news it seems as likely to me as ever!

http://uk.reuters.com/article/usPoliticsNews/idUKWAT00953020080520

WASHINGTON (Reuters) - The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.


The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow.

The measure passed in a 324-84 vote, a big enough margin to override a presidential veto.

The legislation also creates a Justice Department task force to aggressively investigate gasoline price gouging and energy market manipulation.

"This bill guarantees that oil prices will reflect supply and demand economic rules, instead of wildly speculative and perhaps illegal activities," said Democratic Rep. Steve Kagen of Wisconsin, who sponsored the legislation.

The lawmaker said Americans "are at the mercy" of OPEC for how much they pay for gasoline, which this week hit a record average of $3.79 a gallon.

The White House opposes the bill, saying that targeting OPEC investment in the United States as a source for damage awards "would likely spur retaliatory action against American interests in those countries and lead to a reduction in oil available to U.S. refiners."

The administration said less oil going to refineries would limit available gasoline supplies and raise fuel prices.

Foreign investment in U.S. oil infrastructure has declined in the last decade. But the state-owned oil companies of several OPEC nations are owners of U.S. refineries, and those investments could be affected if the legislation becomes law, said Arlington, Virginia-based FBR Capital Markets Corp.

The bill also requires the Government Accountability Office to carryout a study on the effects of prior oil company mergers on energy prices.

The Senate would still have to approve the House measure.

The Senate previously approved similar legislation as part of a broad energy bill. However, the OPEC-suing provision was removed after White House opposition in order to get the underlying energy legislation signed into law.

(Editing by Christian Wiessner)

28 Comments – Post Your Own

#1) On May 20, 2008 at 4:13 PM, TMFDeej (99.25) wrote:

HAHAHAHA.  What are these politicans thinking?  What do they suppose is going to happen if we "sue" OPEC?  Do they actually think that doing so will get us anywhere?  If we actually go after OPEC for damages, they'll tell us to go screw ourselves and cut off a huge chunk of our oil supply.  We're completely at their mercy.  Politicians are so ignorant.  Saudi Arabia can't pump what it doesn't have.  They aren't going to risk permanent damage to what's left of Ghwar and some of their other giant fields just so some Mom here in the U.S. can shave a couple of bucks off of her monthly gas bill for her SUV.  What a joke.

Deej

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#2) On May 20, 2008 at 4:19 PM, ATWDLimited (< 20) wrote:

Congress=a bunch of drunk retards fooling around with your life, liberty, wallet ad who knows what else.

DRIL DRILL, DRILL HERE,BUILB BUILD REFINERIES, INCREASE OUR OWN SUPPLY. USE OUR COAL, OIL AND GAS, DON'T PLAY THIS GAME. It ain't OPEC, it ain't Big OIl its you, you schmucks, stop over taxing, overspending, over regulating, let industry and the market take care of it, they are 10 trillion times better than you, all you guys are are short sited paracities playing the politics, I swear, I never ever saw more dumb people do less.

How many congressmen does it take to screw in a light bulb?

IQ*Us Debt/GDP + wasted money

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#3) On May 20, 2008 at 4:24 PM, zygnoda (26.91) wrote:

Cmon...  OPEC has to know that these guys do stupid stuff.  I mean all the consumers are whining so they have to pretend to do something...

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#4) On May 20, 2008 at 4:26 PM, TMFHelical (99.08) wrote:

Ironically, the reason this is so stupid isn't even about the oil.  The Saudi's could, should they be inclined, likely collapse the market for US treasuries on a whim.

Zz

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#5) On May 20, 2008 at 4:30 PM, ATWDLimited (< 20) wrote:

We don't want pretending, thats politics, it is the most pathetic thing, results, thats the key, they are burning you money to do nothing, they work 4 days of the week, and they do squat, if only they operated like a business, than agin, most of what they do now should not be done by them, so the free market would be doing it. If anyone pulled this in the real world, they would be fired for stupidity.

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#6) On May 20, 2008 at 4:31 PM, RVAspeculator (29.41) wrote:

TMF,

 Its funny you post this because I was just about to load up on some DUG and when I saw this bill I thought the same thing.  Who knows how high oil will go now?

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#7) On May 20, 2008 at 4:56 PM, XMFSinchiruna (27.06) wrote:

RVA, I'm very glad you decided not to buy DUG!!  Shorting oil and natural gas at this stage would be as dangerous as shorting gold and silver.   The trend is your friend, and until you see a break in the trend, even though I gather from your username that you like speculating, I truly would caution you from trying to predict the timing for a meaningful break in such a powerful trend.

Natural gas, for its part, has barely begun its rise if you compare percentage increases between crude and NG.  Consider the historical ratio between oil and NG before presuming NG will follow crude down if there is a correction.

There are plenty of safer ways to make money in the present environment, i.e. gold and silver.  And if you want something to short, there's always the financials.  :)  (SKF)

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#8) On May 20, 2008 at 5:34 PM, FourthAxis (< 20) wrote:

Damn, I can't find the "double rec" OR "triple rec" button! 

I also loaded up on DBE a couple days ago. :-P

Holdings:

Heating Oil           24.57%      
Crude Oil         23.28%     
Brent Crude          23.14%     
Gasoline Rbob         22.56%     
Natural Gas          12.11%

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#9) On May 20, 2008 at 5:36 PM, mandrake66 (42.35) wrote:

Sometimes it's really sad to watch the decline of the American superpower, but it's not without its laughs. This is like watching some grungy addict suing his pusher, not for getting him addicted but for charging too much.

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#10) On May 20, 2008 at 5:42 PM, abitare (39.50) wrote:

... iam pridem, ex quo suffragia nulliuendimus, effudit curas; nam qui dabat olimimperium, fasces, legiones, omnia, nunc secontinet atque duas tantum res anxius optat,panem et circenses. ...(Juvenal, Satire 10.77-81)

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#11) On May 20, 2008 at 5:55 PM, zygnoda (26.91) wrote:

Washington is now engaged in a largely partisan debate over what to do. The difference between the two approaches is instructive.

Democrats have produced a plan that could be labeled "Investigate, Litigate and Confiscate." They have dusted off some ideas that are proven losers, including having the Federal Trade Commission again look for price gouging by energy companies. These investigations have been started dozens of times and have never produced anything.

Another Democratic idea is to sue OPEC and force higher production, which would ironically make us more dependent on foreign oil. Another is to increase taxes on U.S. energy firms. All of these proposals have one thing in common – they would not produce a single additional gallon of gasoline.

One particularly counterproductive idea is for a windfall profits tax on American energy producers. We have tried this several times, most recently in the 1980s, and the nonpartisan Congressional Research Service reports that it actually diminished our energy supply. It would reduce exploration and development of alternative energy, and increase reliance on foreign supplies.

http://www.dallasnews.com/sharedcontent/dws/dn/opinion/viewpoints/stories/DN-cornyn_12edi.ART.State.Edition1.45fa543.html

 

Hillary boldly declared the following:


"We're going to go right at OPEC. They can no longer be a cartel, a monopoly that can get together once every couple of months in some conference room in some plush place in the world, they decide how much oil they're going to produce and what price they're going to put it at."


And the Indiana crowd applauds, Mission Accomplished. A couple of problems: OPEC isn't to blame for our sorry state of affairs, and a President Clinton would be hamstrung to do anything about it even if it was. But hey, it sure made for a nice campaign speech.

What is the problem facing our fossil-fuel dependent planet? Matthe Yglesias:


The Clinton campaign idea of somehow busting up the OPEC cartel not only seems impractical (how, exactly would this get done?) but it also bespeaks a real ignorance of what's happening with the price of gas. It's not just the the case that the current price escalation is driven by OPEC-induced supply restrictions--all indications are that everyone's producing as much oil as they possibly can. After all, with prices this high how could you afford not to pump as much oil as you could? It's just that demand for oil is high and rising, so the price goes up.


Josh Marshall concurs, and adds:


Hillary is certainly not the first candidate to bash the oil producing states or oil companies around election time. And the polls seem to show it's working for her. But I'm concerned about the widening gap between reality and her campaign trail statements. First with the pledge to obliterate Iran if they attack Israel, then the rebellion against economists and now this. Where are we going here?


Megan McArdle links to a list of reasons why anti-trust action against OPEC isn't going to happen, and chimes in:


Hillary Clinton wants to sue OPEC for not producing oil from wells they haven't drilled yet. Next: a lawsuit against Ford for not building us the cool flying cars we were promised in The Jetsons. I WANT MY FLYING CAR!!!


You want a scapegoat for why the price of gas is getting out of hand? How about China, where an economic boom has given the world millions more drivers over the past few years. Or how about the American auto industry, who resisted all calls to build more fuel-efficient vehicles? There's plenty of blame to go around on this one, but it somehow feels right to bash a bunch of rich Arabs.

Let me anticipate a few of the comments that may be left in response to this post and say that I find the Clinton-supporter defense, "Well, at least she's trying!" to be more than a tad off-bases. Yes, symbolic gestures are important, but if our candidates are free to offer up pie-in-the-sky solutions that ignore the most basic principles of supply and demand, and that even they know aren't ever going to become reality, then our politics have devolved into a sorry, sorry state of being.

http://news.aol.com/political-machine/2008/05/06/pander-fest-08-hillary-vs-opec/

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#12) On May 20, 2008 at 5:59 PM, EScroogeJr (< 20) wrote:

"The House of Representatives overwhelmingly approved legislation on Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices"

And can I sue the US government for limiting foreclosed home supplies and working together with homeowners to set house prices?

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#13) On May 20, 2008 at 6:04 PM, zygnoda (26.91) wrote:

Yes... We must sue more organizations and people.  By creating many frivolous lawsuits we can grow the ligation indutry.  This will alleviate the unemployment problems caused by the housing and financial crises. 

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#14) On May 20, 2008 at 6:44 PM, upupaepops (83.02) wrote:

The U.S. military is a huge user of oil and gas. This demand helps to keep prices high. The public derives no benefit from this, quite the opposite. End the wars and bring the troops home.

War leads to prosperity for the arms manufacturers.

Peace leads to prosperity for the people.

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#15) On May 20, 2008 at 7:11 PM, abitare (39.50) wrote:

To shadow upupaepops 

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#16) On May 20, 2008 at 7:30 PM, Tastylunch (29.37) wrote:

Good lord

It's crap like this that makes me actually consider leaving the United States.I wish I were joking.

As for the Saudis, the numbers I saw in college (which admittedly were incomplete due to the scarcity of information available)  suggest to me that Ghawar has peaked or is about to and the Saudis can't increase substanially production even if they wanted to....then Matt Simmons wrote a book about it. Not sure I agree with all his conclusions but on the whole I think he is probably right.

How effin stupid can congress be? 

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#17) On May 20, 2008 at 7:31 PM, zygnoda (26.91) wrote:

good video  abitarecatania

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#18) On May 20, 2008 at 8:26 PM, XMFSinchiruna (27.06) wrote:

You guys are the best!  :)  If I have to watch this horror movie unfold, there's no group of people I've never met that I'd rather be watching this with. :)

This is very troubling stuff, though, seriously.  The political ramifications are myriad and severe.  At a time when we need to ensure that we restore a sense of good will towards our country around the world, this will have the exact opposite effect.  I could almost hear the mumblings of a billion people around the world as I read the article... "those [blankety-blank] Americans... who do they think they are?"

Financially speaking, it's game on for commodities... and not just oil.  Watch gold and silver in the coming weeks as the end of the correction technically coincides with further flight from the USD.  This announcement will embolden China in its quest to secure needed resources (see prior blog post), will likely provoke Venezuela to follow through on its threat to cut off exports to the U.S. as per http://news.bbc.co.uk/2/hi/americas/7238214.stm, and the scariest of all possibilities... other oil-producing nations might be inclined to join Iran in creating an oil bourse outside the USD, perhaps a Euro bourse.

Let's just hope this doesn't escalate into military confrontation, because in my opinion its a fine line between financial warfare and the real kind... and one that has been crossed before.

 

http://in.reuters.com/article/topNews/idINIndia-33679320080520

 

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#19) On May 20, 2008 at 8:43 PM, Foehammer (22.28) wrote:

  As several have already mentioned or hinted at...so what. So they bring a suit against OPEC. It's all for show to the American people so they can say: See we understand your problems and are trying to do something about it. Since most of them are lawyers, their natual instinct is to threaten litigation, not actually find a real solution. To actually try to solve a problem would be politically dangerous. First they have to check polls, form commitees, seek approval from the media, and make sure they can get something in return for themselves or their cronies. The whole situation is a big fake game to begin with. We produce oil and send it to Japan at less than what we pay OPEC countries for theirs. How much sense does that make. We constantly hear that the real issue is the lack of refineries. One of the responses we hear as to why we dont build more is that they take five years and that wouldn't solve the current problem. We've been hearing that for 20 years...uh, maybe if ya started building some we could just cut the OPEC countries out of the loop, use our own oil, to supply our own refineries, and really do something for the American People for a change. We may actually be able to make a few bucks in the process by selling to other countries tired of bowing to Arabs. The environmental impact is another excuse, but it's just that...an excuse.

  The really sad part is that until the oil companies stop making billions, nothing will change. When they finally tap the last drop of oil suddenly a miracle will happen and an alternative energy source will become available and viable. The big oil companies will announce that their years of extensive research finally paid off and a cheap and clean method of running our vehicles, heating our homes, and generally making our lives just as convenient as ever was discovered, tested, and ready for us to use just in time to avert a crisis...our heroes.

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#20) On May 20, 2008 at 9:42 PM, rd80 (97.26) wrote:

Maybe they'll pass a bill letting the Justice Dept sue every congresscritter who voted against drilling in ANWR and in our coastal waters.  Seems only fair since congress' action also 'limited oil supplies' and is keeping prices high; exactly what they're accusing OPEC of doing. 

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#21) On May 21, 2008 at 3:12 AM, vicpicks (< 20) wrote:

Amen, rd80.

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#22) On May 21, 2008 at 11:45 AM, binv271828 (< 20) wrote:

Geez,

This makes no sense. Yeah, people are mad about high gas prices and they complain to congress. And then congress comes up with this inane idea to sue OPEC...??? WTF! Doesn't congress realize that the fiscal policy that is going on is a direct contributor to the price of oil? Sure there is probably some speculation, but there is also demand. But if you measure the price of oil relative to a currency that still has value (such as gold), the price has not really risen all that dramatically. The price has risen relative to the USD!!! And as the USD continues to fall, the price of oil will go up.

So what does congress expect? What is their possible end game with this action. The most obvious one (the one they should be avoiding) is this angers OPEC and they cut supply. In this case the price of oil goes up. But let's say the repercussion isn't quite that direct. Let's say instead all the other nations and wealth funds that are propping up the dollar start pulling some support based on the US governement's continued agressive stance against ... well, almost everything. Then the USD slides precipitously. The result: the price of oil goes up.

What outcome can they forsee from this action where the price of oil goes down? It really makes no sense.

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#23) On May 21, 2008 at 5:49 PM, mindmuse (33.78) wrote:

"This bill guarantees that oil prices will reflect supply and demand economic rules"

324-84 vote

and the populace still takes politicos seriously

Good grief

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#24) On May 22, 2008 at 2:23 AM, kristm (99.75) wrote:

Don't you just love an election year? =)

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#25) On May 23, 2008 at 5:47 PM, XMFSinchiruna (27.06) wrote:

Here's my recent article on the issue:

http://www.fool.com/investing/general/2008/05/23/mad-max-opec-lawyers-and-politicians.aspx

 

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#26) On May 27, 2008 at 9:47 PM, raharry (29.08) wrote:

Good! When Clayton and Sherman were passed it was to protect the American consumer from clandestine price-fixing and to normalize the American economy. Do you really believe that the invisible hand of Adam Smith prevails in the Energy Economy today? If nothing else this could eventually "encourage" disclosure. I would very much like to see inside the market manipulations of HAL, BUSH, SAUDI, Inc. Bring it on. There will be no down side. America can only gain now. That's probably why the Bush interests will see that a veto will be penned. Thank God that we now are able to override this insidious manipulation of the American economy. Don't confuse Capitalism with Bushanomics. One allies with Democracy; the other allies with "Trilateralism". Guess which is which?

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#27) On June 02, 2008 at 8:43 PM, jester112358 (28.90) wrote:

While we are ligating this "nuisance" suit in court, the Saudis can just stop buying our treasuries and propping up the American debt (i.e. the government which is suing them)   Guess which action will have the biggest effect on American well-being?  We're a deadbeat nation whose productivity is a thing of the past.  The rest of the world will soon tire of supporting our energy and debt addictions.  And suing until the cows come home won't change this reality!

 Congress, and democrat lawyer-types in particular are unbelievely stupid and lacking in understanding of simple economics.  High prices are desireable to acheive energy independence and to encourage the flow of capital into productive enterprises such as oil, coal and natural gas exploration.   Even the Russians recently acknowledged this by cutting taxes on their oil companies which immediately brought in more capital (as some nice CAPS points and real profits for me).   I know commodies and commidity producers are where my capital is going.  None to the phony paper "assets" such as CDOs, CDSs, SIV "produced" by our investment banks!

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#28) On June 08, 2008 at 1:21 PM, broxburnboy (< 20) wrote:

The high price of oil and other commodities reflects not only supply and demand fundamentals, but the destruction of the value of the US greenback. If the price of oil is to fall or at least stabilise, the value of the US dollar will have to stabilise. This is not going to happen as long as the borrow and spend policies of the last 7 years are continued.

Every day that America sends its wealth over to the middle east to be destroyed in a pointless, endless war, the buck will continue to erode. Whenever money is borrowed from abroad to finance ludicrous "tax cut rebates" and other "stimulus" initiatives, the hole we dig gets deeper.

Politicians point fingers in every direction save one and try to give the impression that they have the means to control economic consequences to irresposible  decisions they have made in the past. We, the sheep, acquiesce.

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