This may be legal, but it sure isn't
fair very patriotic.
Much of what Enron did was legal too -- but it still caused little old grandmas to spend extra money, that they couldn't afford -- to heat their homes ... or in Koch Industries case, to drive their cars to the store ... with gas costing twice what it used to not so long ago.
How Koch Became An Oil Speculation Powerhouse
From Inventing Oil Derivatives To Deregulating The Market
by Lee Fang, ThinkProgress -- Jun 6, 2011
In April, ThinkProgress caused a stir when we uncovered a series of Koch Industries corporate documents revealing the company’s role as an oil speculator. Like many oil companies, Koch uses legitimate hedging products to create price stability. However, the documents reveal that Koch is also participating in the unregulated derivatives markets as a financial player, buying and selling speculative products that are increasingly contributing to the skyrocketing price of oil. Excessive energy speculation today is at its highest levels ever, and even Goldman Sachs now admits that at least $27 of the price of crude oil is a result from reckless speculation rather than market fundamentals of supply and demand. Many experts interviewed by ThinkProgress argue that the figure is far higher, and out of control speculation has doubled the current price of crude oil.
-- 1990-1992: Koch, along with several oil companies and Wall Street speculators, form a coalition lobbying group to deregulate oil speculation. A coalition called “The Energy Group” is organized to press the Commodity Futures Trading Commission (CFTC) to allow oil derivatives to be traded off the NYMEX or any other regulated exchange. Participants in the coalition include Koch, Enron, Phibro (a powerful commodity speculator firm recently sold from Citigroup to Occidental Petroleum), J. Aron & Co (a commodity trading division of Goldman Sachs), BP, and other companies.
-- 2010: Koch’s Tea Party front groups and lobbyists fight financial reforms designed to reign in the unregulated energy market. While Americans for Prosperity, as well as other Koch fronts, decry the Wall Street reform bill debated in Congress, Koch lobbied to water-down provisions of the bill related to derivatives. The sweeping Dodd-Frank reform bill contained broad new powers for the CFTC to crack down on excessive oil speculation, while also requiring that derivative are eventually traded on a regulated and open exchange.
Meet the New Oil Bosses, same as the Old Oil bosses ... CFTC is still stalling on implementation of their new speculation oversight duties too, or so I've read recently. I hope this changes soon.
Koch Industries has enriched itself by keeping oil off the market, storing it in offshore tankers and waiting to cash in when the cost of oil rises.
Here's how that oil price-raising scheme works, as once again revealed by Lee Fang of ThinkProgress last year.
The Tanker-shell game is call "Contango," as explained by a Koch CEO ...
The Contango Game: How Koch Industries Manipulates The Oil Market For Profit
by Lee Fang, thinkprogress -- Apr 13, 2011
While much of the attention on oil speculators has rested on the backs of investors and commodity traders, the petrochemical conglomerate Koch Industries occupies a unique role in manipulating the oil market. Koch has little business in the extraction process. Instead, Koch focuses on shipping crude oil, refining it, distributing it to retailers — then speculating on the future price. With control of every part of the market, Koch is able to bet on future prices with superior information. As Yasha Levine notes, Koch along with Enron pioneered a number of complex financial products to leverage its privileged position in the energy industry.
In 2008, Koch called attention to itself for “contango” oil market manipulation. A commodity market is said to be in contango when future prices are expected to rise, that is, when demand is expected to outstrip supply. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. In December of 2008, Koch leased “four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead.” Writing about Koch’s contango efforts to artificially drive down supply, Fortune magazine writer Jon Birger noted they could be raising “gasoline prices by anywhere from 20 to 40 cents a gallon” at the time. Speaking with the Business Times, Koch executive David Chang even boasted that falling crude prices in 2008 provided an opportunity remove oil from the market for future delivery:CHANG: The drop in crude oil prices from more than US$145 per barrel in July 2008 to less than US$35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery.
So much for letting the Free Market work its invisible magic. So much for giving consumers "the best product for the best price" -- a key concept on which Consumer Capitalism is supposed to be based. If it is supposed to work, to the benefit of all the people, that is.
If the Kochs have the capacity to "wait it out" and financial instruments and "storage capacity" to "pick and choose" when they "bring their product to market" -- is it any wonder they have become the Billionaire Oil Tycoons that they have become. All the while, the rest of the consuming public has to just sit by and take it, as these Oil Baron's speculative bets, work to "keep supplies down," and send the price of a gallon of gas skyward.
Rising Gas Prices ... all supposedly because of "the LACK of production capacity" as they repeat ad-nauseum on Fox News and CNBC. Very curious. Capacity seems not to be the problem, rather it's "Delivery" to market gumming up the works. Thanks to the 'Energy Group' oil coalition.
Is it any wonder that President Obama wants to halt tax-payer-paid Oil Subsidies to Big Oil -- it's not like they need the extra help, tapping into our wallets now, do they? They seem to have that one all figured out. Almost down to a science, it would seem.
Just another expensive day, paying homage to the Industrial Age. This is sure getting old. No wonder the Occupy movement has legs -- about a million of them, and counting.