Despite Katrina, US Has HUGE Oil Glut -- Why Are Prices So High?

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Thursday September 08, 2005 · 7:45 AM PDT

2005/09/08 · 07:45

No, your eyes aren't deceiving you. America has a HUGE, five-million-barrel oil glut, despite both Katrina and it being the summer driving season.

Why? Check this out from James Ridgeway at the Village Voice:

The very first thing George W. Bush did in response to Hurricane Katrina was to offer a helping hand--not to the people stranded on rooftops in New Orleans, but to his friends in the oil industry. These were the same people who gave him $52 million in his last campaign. The president released millions of barrels of oil from the Strategic Petroleum Reserve so the oil companies would have enough fuel to make gas and keep the country going. But the companies don't need this oil. They're already swimming in it.

(More after the jump...)

Pouring more oil into the marketplace didn't reduce gasoline prices, which kept on going up, hitting $4 a gallon in some places.
While crude oil production doubtless was curtailed by the storm, the companies face a surplus, not a shortage, of crude oil. So why dump more on the market?
"Despite growing inventories, U.S. commercial crude oil inventories (excluding the Strategic Petroleum Reserve) increased by nearly 5 million barrels over the past 3 weeks," wrote the federal Energy Information Administration. Continuing in the clipped industry jargon, the agency added, "While this may not appear to be a substantial build, it comes at a time when crude oil inventories typically decline, as refiners use more crude to make gasoline needed for current demand and heating oil as they stock up for the winter."
Thus, any crude oil inventory increase during the month of August, much less one of five million barrels over a three-week period, might lead one to expect prices to drop. Yet the price for West Texas Intermediate (WTI) crude oil has risen by $5 per barrel! If prices don't fall under these conditions, what will make them fall?

It gets even better:

All over the world this summer, oilmen raced to dump surplus into the U.S. market, where the rigged prices made them a killing. Oil traders in China, the second biggest world market next to the U.S., were shoving oil into the high-priced U.S. market to make more money. (The U.S. consumes 25 percent of the world market; China 7 percent.)
Fort Worth Star-Telegram columnist Ed Wallace wrote last week that "there's actually weakening demand in Asia over the past two months, so oil is being diverted to the U.S., where it'll bring higher profits." He quoted Reuters as noting that "Chinese oil trader Unipec resold at least 3 million barrels of August-arriving crude due to reduced refinery demand and was offering more, traders said last week." Mary Rose Brown, a spokeswoman for Valero in San Antonio, was quoted by The Wall Street Journal as saying, "There is no reason for crude oil to be at $65 a barrel other than hype in the market."

Go read the whole thing. It's sickening. Waxman needs to hold hearings.

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