Commodities Markets- a Primer

From WaPo:
"A Senate committee yesterday announced an investigation into taxes paid by major oil companies and asked the Internal Revenue Service for the companies' tax returns.
The Senate Finance Committee promised "a comprehensive review of the federal taxes paid" by the 15 largest oil and gas companies. The panel said it wants to inspect their tax returns for the past five years."

Ok, this is just blatant political grandstanding. Ditto Bush's "we'll look into this" speech from the other day. Why? Because unless these people are morons (which, in the case of our illustrious president, may not be too far off the mark), they understand the nature of the world market for oil, which operates not unlike the world market for coffee. Here's a brief explanation:

World demand for oil is increasing daily, as countries like China and India industrialize. But, you say, what of supply? There have been no hurricane Katrinas lately, no major bombings of oil pipelines or the like. Increased demand should be met by increased supply, right? And the markets should balance out accordingly? Well, not really in commodities markets. Commodities markets are ALL ABOUT speculation. What is setting oil at $70/barrel is fear of future diminished supply. You see, right now traders are bidding on oil contracts for delivery three to six months from now. How do these traders know what the state of oil supply/demand will be in July or August, you ask? They don't. We're all paying the price for their best guess. But the guess is educated. They look at oil use in the summer in industrialized countries- it goes up, right? They look at the growing demand for oil worldwide. That's not going to lessen. AND they look at the political situation in those places where oil is plentiful. Middle East? a mess. Nigeria? disaster. Venezuela? Chavez wants to deprivatize. These things are not good in the eyes of speculators. Any one situation- a turn for the worse in Iraq, Iran, mass chaos in Nigeria, Chavez making good on his threat- will cut hardcore into supply. So they bid with this in mind, and they bid high. Thus $70/barrel.

What does this have to do with Exxon et al? Well, as much as we may hate it, they're entitled to their profits, just as Sara Lee or Kraft would be entitled to profits if the coffee market began behaving in a similar fashion. They are not withholding supply. Why would they? They are supplying, and traders are bidding very high for what they supply. Unless they are responsible for fomenting conflict in those oil-rich areas of the world, they are not doing anything illegal by profiting from the high price of oil. It's business, people. It is what it is.

But maybe they should act altruistically, and cut into their profits to relieve our woes at the pump? But then they would be beaten on the market by foreign oil companies such as Elf or Total/Fina or Shell who have no such humanitarian impulses. This doesn't seem fair, from a business perspective.

So who is to blame for this? Not the oil companies. They're only acting as they should. Who then? Why, the Bush Administration. Completely. Here's why:

The "Bush Doctrine"- the starry-eyed fairy tale that told us that we would be greeted in Iraq as liberators, that the war would take a few weeks, that the entire middle east would follow suit and suddenly become capitalist democracies, and that Iraqi oil wells would quickly pump oil, paying not only for reconstruction but stablizing world oil prices. And, by the way, we'd suddenly have a lot of influence in a market that was heretofore not ours to control. Wouldn't that have been nice? Trouble is, the world doesn't work that way. Instead, we hit a hornets' nest with a baseball bat, exciting sectarian tensions which Saddam had (cruelly, yes) tamped down, and creating tension in an oil-rich part of the world where there was less tension before. So now, instead of Iraqi oil freely flowing and under our control, Iraqi oil is flowing nowhere, Iran is building nuclear weapons, Al Qaeda has found new training ground, and the whole region is a bloody, unhappy mess. And because of this, oil is more expensive than it has ever been. Oops.

More on this later.

Ho-hum

I realized that I haven’t posted on Noisette for some time, and after a bit of soul-searching I’ve come to understand the reason why, which in the spirit of humility I will share with you. I’ve been avoiding posting my semi-regular rants because I’m supposed to have a debate with some conservative dude and truth to tell, I just don’t feel like it. Even though I proposed it in the first place (although I never set a time, in my defense). I feel a bit like Aaron Burr walking away from a duel.
I hardly ever shy away from a fight, especially one where I think the odds are on me. don’t know anything about this guy, other than that he has a blog on which he posts rather extreme conservative invective. I’m sure he’s lovely. I’m sure he’s bright. (Honestly, I’m not even sure he’s a dude, but I’m gonna give myself a pass on that one.) But I’ve taken on some very, very, very, VERY illustrious (or, with regard to the last "very," notorious) conservatives, and while I haven’t won, I’ve held my own against each. To the point where I became their go-to woman on intelligent liberal thought. Point being, I couldn’t drag them over to my side, but I debated well enough and was informed enough to keep their interest and keep them coming back for more. Now, this is not to say that my potential opponent is not every bit as illustrious as the “very”s above. He may be. But if this were the track, or the stock market, or the superbowl, my money would be on that horse/blue chip/AFC Champion named Noisette.
And generally, I think civil debate between two people on opposite sides of the political spectrum is healthy and good, both for the participants and the observers. I used to relish, and still (usually) do, healthy political debate with the men above because it kept me sharp in my liberal ideals.
Not these days, though. These days I’m just tired. I do my work and I go home and I watch TV and I go to bed. Perhaps this means my best days are behind me, from a liberal-defense perspective. I don’t think so, though- I rather think that this is just a hiatus.
So, to the conservative dude who hoped to debate me, I apologize. It might have been fun. But I just don’t have the constitution or resolution for it right now. Take care, and be well.

No F***ing Kidding

An update to my razor-sharp coverage of the Administration's misguided "A-B-C" AIDS prevention program:
(From WaPo)
"GAO Criticizes Bush's AIDS Plan
Abstinence-and-Fidelity Provision Sowing Confusion, Report Says

The requirement that a large fraction of President Bush's global AIDS plan go to promote abstinence and fidelity is causing confusion in many countries and in a few is eroding other prevention efforts, including ones to reduce mother-to-child transmission of the virus.

The Office of the U.S. Global AIDS Coordinator requires that 20 percent of all AIDS spending go for prevention. Half the prevention budget must be spent to stop sexual transmission of HIV. Two-thirds of that spending, in turn, must be used promoting abstinence and fidelity.

"Most of the 20 PEPFAR teams . . . reported that fulfilling [that requirement] presents challenges to their ability to respond to the local epidemiology and cultural and social norms," the GAO authors wrote. About half a dozen teams said the spending requirement "can undermine the integrated nature of HIV/AIDS prevention programs."

Of the 15 "focus countries" -- 12 African countries, plus Haiti, Guyana and Vietnam -- nine reduced the amount of money for programs to prevent mother-to-child transmission of HIV in their 2006 budgets to meet the spending target for abstinence promotion."

Nice job, kids. A further illustration of the Bush Administration's touching cultural sensitivity.

Happy Birthday Senegal

http://todayspictures.slate.com/20060404/