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October 28, 2013 Q&A

Debunking myths behind U.S. oil prices

Q&A talks about the true drivers of oil prices with Raymond Learsy, a commodities trader in Sharon and author of Ruminations on the Distortion of Oil Prices and Crony Capitalism.

Q: You have a new book out, Ruminations on the Distortion of Oil Prices and Crony Capitalism. In brief, what is crony capitalism and why is it distorting oil prices?

A: Crony capitalism is when interests, organizations, and individuals who have a financial interest in the direction of markets have access to government policy makers in order to direct legislation and oversight to their advantage.

Q: In your introduction to the book, you write, “The great ally of oil interests, both commercial and political, is misinformation.” What do you mean by that and how do we overcome that misinformation?

A: The extent of misinformation coddled by the media seems endless. There is always a reason for higher and higher oil prices whether it is threat of hurricanes in the Gulf, curtailment of oil shipments in Nigeria or Libya, pipeline problems somewhere, sabre rattling somewhere else. There is always a rationalization put forward to explain away price hikes. Even peak oil, which was put forward unconditionally as gospel for years as a core reason for high prices, has now been discredited with the vast findings of shale oil and its growing production in the United States and elsewhere.

Q: Your book focuses on “Wall Street's corrupting influence on the price of oil, gasoline and other commodities.” What's the means for overcoming this corrupting influence? Is there the political ability to overcome it?

A: Wall Street's bank holding companies are major players in the oil market. Their trading desks control vast storage facilities for oil and are known to have chartered huge tankers carrying over 200,000 tons (not barrels) of oil and keeping them at anchor, at sea for months into years at a time to speculate or impact oil prices. And yet the government through the Federal Reserve permits this to happen and also provides Wall Street access to federal funds so they can play their oil roulette.

Q: Another part of the introduction talks about the distortions of oil products like home heating oil. What drives it up every winter? Why isn't a known demand better stabilized in advance?

A: The political sway of oil interests is manifest especially if 'cold weather' can be used as a rationalization to spike prices. The government has more than 700 million barrels in the strategic petroleum reserve. The release of a very small portion of that reserve could significantly abate price swings in peak seasons, yet the government is too influenced by the oil lobby to consider such action in the interests of homeowners using heating oil who have little sway over government policy.

Q: You say, “Consumers are incensed not only by the price of gasoline and how it is promulgated, but also by the crony capitalism practiced by policy makers, regulators and others …” Besides feeling the pain at the pump, do you get the sense most consumers even know about the factors driving high oil product prices?

A: That's the point. The amount of disinformation promulgated by oil interests and lack of insightful understanding through lack of coherent analysis of information makes the consumer the inverse of 'an educated consumer makes the best customer.' In this case the 'uneducated consumer becomes the biggest patsy.'

Q: Along those lines, what can be done by consumers on the local level to overcome these problems? Oil products are a big cost to any business. Are there steps to be taken to weaken the influence?

A: At the local level consumers can begin to hold their elected officials answerable as to why our government oversight agencies have been totally ineffective. The Commodity Futures Trading Commission was mandated by Congress over three years ago to set trading limits on the oil derivative contract holdings of traders/speculators. Since then the CFTC has been lobbied into 'studying the issue.' There is little oversight of the commodity exchanges, which provide a platform for 'managed prices.' For every barrel of real oil produced, some 30 barrels of oil derivative contracts are traded on the exchanges along with all the alleged collusionnary and casino mischief that entails.

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