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Congress Approves National Colosseum

Not really. But Capitol Hill politicians might as well allocate funds to build one, complete with chariot races and gladiators to keep us happy, considering the way they’re pandering to the masses these days. When Congress only has a 20% approval rating (Gallup), what else would you expect? Something like what happened today. Hoping to sooth the economic pain (and gain the electoral support) of Joe Six-Pack and Suzy Soccer Mom, both the U.S. Senate and House of Representatives, in a direct challenge to President Bush, voted to temporarily halt the shipment of thousands of barrels of oil a day into the government’s emergency reserve. The Strategic Petroleum Reserve, a system of underground salt domes on the Gulf Coast, was created by the U.S. government in the seventies as a precaution against major interruptions of oil supplies. With 701 million barrels in storage, it is currently 97% full, yet the equivalent of only two months of oil imports.

The Senate voted 97 to 1 in favor of suspending the shipments, which average about 70,000 barrels a day, until the end of the 2008. Only Senator Wayne Allard of Colorado voted against the measure. Presidential hopefuls Barack Obama and Hillary Rodham Clinton also voted to halt the shipments as well. John McCain was not present for the vote. Mirroring the same bipartisan support as in the Senate, the House voted 385 to 25 in favor of halting the program.

For some time now, Congress has wanted to tinker with the SPR, jawboning on and on about how curbing deliveries to and/or drawing from the emergency reserve (by the way, what part of “emergency” don’t you get?) can ease tight oil supplies, curb market speculation, and possibly lower crude oil prices. Case in point. MSNBC’s John Schoen wrote back on May 19, 2004 (that’s right, 4 years ago):

With oil prices stuck above $40 a barrel, attention has turned to the U.S. Strategic Petroleum Reserve, a vast stockpile of oil stored underground that the U.S. continues to add to. While Democrats call for releasing some of those reserves to help ease oil prices, President Bush Wednesday repeated his long-standing position that the stockpile should only be used in the event of a critical cutoff of fuel needed to maintain the country’s national defense…

“Since the price of oil is so closely tied to inventory levels, filling the SPR under these market conditions both depletes private sector inventories and pushes up prices for America’s consumers,” said Sen. Carl Levin, D-Mich., in a floor speech in April defending an amendment to defer SPR purchases.

More recently, New York Democratic Sen. Charles Schumer has introduced an amendment to draw 1 million barrels a day from the reserve for the next 30 days.

“Joey, do you like movies about gladiators?”

And Congress’ assertions that curbing shipments to and/or drawing from the SPR could help with our supply problems, dampen speculation, and lower oil prices? Wrong, wrong, and wrong, according to the experts (or, at least, people who know what they’re talking about). Regarding the supply problem, the 70,000 barrels that are being sent to the reserve on a daily basis represents only 0.3% of the 20 million barrels consumed by Americans each and every day. 0.3%? Can anyone tell me how this could possibly help alleviate tight supplies? Regarding the perception that high oil prices are caused by speculators, legendary energy investor T. Boone Pickens told attendees at the Oklahoma State University’s Energy Conference on April 23:

Only 5 percent of oil is in the commodity pool. If you did run it up, it would be briefly. Speculators cannot move it that much.

He would know. Finally, a number of politicians believe (or want us to believe) that halting shipments and even drawing from the SPR will somehow lower oil prices. CNN Money’s Steve Hargreaves wrote today:

A statement from Speaker of the House Nancy Pelosi, D-Calif., said it could bring down gas prices by as much as 24 cents a gallon.

Or so she claims. The CNN Money staff writer also wrote:

The U.S. Energy Information Administration predicts oil prices would fall by only about $2 a barrel - or shave 4 to 5 cents a gallon off the price of gas - if the president suspended deliveries to the SPR.

“It’s a very small amount” of oil going into the reserve, said EIA oil market analyst Doug MacIntyre. “And it’s very transparent to the market.”

Should I believe House Speaker Pelosi or the EIA? Tough call, right?

Here’s something to think about. A possible explanation for the high price of crude oil is that global demand is running at 87 million barrels per day, while the global oil supply is at 85 million barrels per day. Furthermore, while older oil fields are starting to go dry, no suitable replacements are being found. Finally, even though the U.S. economy is slowing, for every 1 barrel of reduced American demand there are 14 barrels of increased demand from developing countries like China, India, and Brazil.

Oh, but this just in…

“Middle East Oil Cut Off By Coordinated Attacks Throughout Region” and “Gulf Oil Infrastructure Destroyed By Category 5 Hurricane”

Well done. Thanks for saving me that nickel.

Sources:

“Senate votes to halt oil reserve shipments”
H. Josef Hebert
Associated Press, May 13, 2008

“House votes to stop adding to oil stockpile”
Tom Doggett
Reuters (UK), May 13, 2008

“Debate flares over strategic oil stockpiles”
John W. Schoen
MSNBC, May 19, 2004

“Oil stockpile a drop in the bucket”
Steve Hargreaves
CNN Money, May 13, 2008

“Pickens: Oil to go to $150 a barrel”
Jerry Shottenkirk
Journal Record, April 24, 2008

Are Americans Bio-Fools?

Anyone read Time? I have a gift subscription, and while my first choice of reading material these days is predominantly financial, when I saw the cover of the latest issue I felt compelled to pick up the magazine and take a closer look. On the cover, an ear of corn is pictured with leaves that have been replaced by $100 bills. The accompanying headline reads “The Clean Energy Myth.” Time’s Michael Grunwald states at the outset:

The Clean Energy Scam. Hyped as an eco-friendly fuel, ethanol increases global warming, destroys forests and inflates food prices. So why are we subsidizing it?

Ouch! The U.S. farm lobby must be going bananas right now. Grunwald explained the drawbacks of ethanol, whose viability as an alternative fuel is being increasingly questioned:

But several new studies show the biofuel boom is doing exactly the opposite of what its proponents intended: it’s dramatically accelerating global warming, imperiling the planet in the name of saving it. Corn ethanol, always environmentally suspect, turns out to be environmentally disastrous. Even cellulosic ethanol made from switchgrass, which has been promoted by eco-activists and eco-investors as well as by President Bush as the fuel of the future, looks less green than oil-derived gasoline.

Meanwhile, by diverting grain and oilseed crops from dinner plates to fuel tanks, biofuels are jacking up world food prices and endangering the hungry. The grain it takes to fill an SUV tank with ethanol could feed a person for a year. Harvests are being plucked to fuel our cars instead of ourselves. The U.N.’s World Food Program says it needs $500 million in additional funding and supplies, calling the rising costs for food nothing less than a global emergency. Soaring corn prices have sparked tortilla riots in Mexico City, and skyrocketing flour prices have destabilized Pakistan, which wasn’t exactly tranquil when flour was affordable…

But the basic problem with most biofuels is amazingly simple, given that researchers have ignored it until now: using land to grow fuel leads to the destruction of forests, wetlands and grasslands that store enormous amounts of carbon.

Deforestation accounts for 20% of all current carbon emissions. Grunwald used the example of the Amazon in Brazil. He wrote:

U.S. farmers are selling one-fifth of their corn to ethanol production, so U.S. soybean farmers are switching to corn, so Brazilian soybean farmers are expanding into cattle pastures, so Brazilian cattlemen are displaced to the Amazon…

…resulting in Paulo Bunyan

Apparently, there is hard science to back up Grunwald’s claims that biofuels are harmful. He wrote:

The environmental cost of this cropland creep is now becoming apparent. One groundbreaking new study in Science concluded that when this deforestation effect is taken into account, corn ethanol and soy biodiesel produce about twice the emissions of gasoline…

“People don’t want to believe renewable fuels could be bad,” says the lead author, Tim Searchinger, a Princeton scholar and former Environmental Defense attorney. “But when you realize we’re tearing down rain forests that store loads of carbon to grow crops that store much less carbon, it becomes obvious.”

Knowing all this, we must return to the question of why we are subsidizing it. The answer? Biofuels are politically-popular. Grunwald wrote:

Members of Congress love biofuels too, not only because so many dream about future Iowa caucuses but also because so few want to offend the farm lobby, the most powerful force behind biofuels on Capitol Hill. Ethanol isn’t about just Iowa or even the Midwest anymore. Plants are under construction in New York, Georgia, Oregon and Texas, and the ethanol boom’s effect on prices has helped lift farm incomes to record levels nationwide.

Someone is paying to support these environmentally questionable industries: you. In December, President Bush signed a bipartisan energy bill that will dramatically increase support to the industry while mandating 36 billion gal. (136 billion L) of biofuel by 2022. This will provide a huge boost to grain markets…

… and, quite possibly, global warming, the destruction of forests, and food prices as well.

Source:

“The Clean Energy Scam”
Michael Grunwald
Time, March 27, 2008

Stock Markets Fall Around The Globe

Returning to work on Monday is hardly ever fun. Losing a ton of money makes it even worse. While American financial markets were closed in remembrance of Martin Luther King, Jr., stock markets around the world were being hammered.

Indexes in Japan, China, Hong Kong, India, South Korea, and Singapore fell at least 3%. Indian stocks were punished severely, dropping nearly 11% at one point in the trading session before finishing off more than 7%. The Australian and New Zealand stock markets have now experienced losing sessions for 11 and 13 days, respectively.

Photo from DailyHaHa.com

The carnage in equities spread to Europe. The pan-European Dow Jones Stoxx 600 index ended down 5.4% at 309.67. At one point earlier in the trading session, the index earlier reached a low of 308.69, which was the largest one-day percentage drop since the September 11 terrorist attacks. The index has lost around 23% from its mid-2007 high of 400.99. The French CAC-40 index ended the day down 6.8% to 4,744.45. The German DAX 30 index was down 7.2% to 790.19. The U.K. FTSE 100 index declined 5.5% to 5,578.20.

Making its way to the Americas, the global sell-off spread to Canada and Latin America. The S&P/Toronto Stock Exchange composite index sank 4.7% to end the day at 12,132.14. Brazil’s Bovespa fell 6.6% to 53.694, and Mexico’s Bolsa index declined 4.8% to 25,444.

According to MarketWatch today, losses from financials were largely to blame after U.S. bond insurers came under attack by a ratings agency, and the proposed economic stimulus plan from President Bush failed to convince investors that it would be enough to prevent a recession in the United States. The stock sell-off occurred after the worst weekly performance on Wall Street for five years.

All eyes are now turned to Wall Street, which resumes trading Tuesday. As of this afternoon, the Dow Jones Industrial Average futures contract was down 520 points to 11,586, the Nasdaq futures were down 76.25 to 1,773.25, and the Standard & Poor’s 500 futures had fallen 60.3 to 1,265. According to MarketWatch:

If futures contracts traded on a day when U.S. stocks weren’t even due to open are anything near accurate, then markets will be in for a major decline on Tuesday, with concerns about bond insurers and the health of financial institutions dragging markets lower.