The Fed decided yesterday it would continue to buy $85 billion in bonds, despite its own statement that the economy is doing better in the United States.
The Fed counteracted its waffling statements about tapering bond purchases over the next few months. Bernanke says he will keep his foot on the liquidity gas until unemployment is below 6.5% or we get some kind of inflation, as reported by the CPI.
Unemployment is now at 7.2% and inflation is nonexistent, around 1.2%, except in terms of energy prices…
The price of the NYMEX crude futures didn’t change much on the news, but it is up more than 20% since last year.
Furthermore, the inventories in the U.S. are off the charts in terms of oil in storage due to increased U.S. production.
Last Wednesday the U.S. Energy Information Administration revealed U.S. crude stocks rose by 313,000 barrels when they expected a 500,000-barrel decline.
Stocks are well above the five-year average range. Take a look at the chart:
Production’s Up…
The U.S. saw its biggest ever annual increase in oil production in 2012, producing 8.9 million barrels of oil a day — up 13.95% from 2011.
Demand is Also Falling
Energy demand in the United States fell 2.8%, leading an overall decline of 1.2% in developed countries.
Economics 101 tells us that when you have more of something, and demand is falling for that same thing, prices should drop.
That’s not happening.
One reason is that oil is the world’s most valuable and fungible commodity. It is also a large market in the way that gold isn’t. Major market movers have been using it as a way to price in the global currency wars.
The second reason is the price of oil production has been growing. Shale and sand might have oil, but it’s not cheap to produce. World oil production costs have been climbing about 9% per year.
Furthermore, the U.S. government lacks any real plan for energy. The stupid giveaway to farmers for ethanol… the caving in to enviro-wackos over pipelines… the de facto ban on drilling… the vast amount of government cash given to electric car cronies and insiders like Al Gore, not to mention train owners like Warren Buffett… these all point to the fact that Washington wants high oil prices.
China Will Buy It
On top of all of this, the U.S. is no longer the world’s largest consumer and importer of oil.
This dubious honor now goes to China.
China is now buying around 21 million new cars a year, with SUVs making up the fastest-growing segment. American consumers buy about 14 million cars a year, and the trend is toward smaller, more fuel-efficient vehicles.
Perhaps T. Boone Pickens had it right in his most recent email, in which he complained about China “stealing” our oil:
I don’t like saying, “I told you so.” But the United States spent $2.2 trillion and tragically lost more than 3,000 men and women fighting in Iraq, and now the Chinese are getting over half the Iraqi oil. On numerous trips to Washington, DC, I said that would happen, and now it has.
Every day, 17 million barrels of oil come out of the Straits of Hormuz. We get about 10% of that, but the Chinese get significantly more. And in the process, the United States is spending billions of dollars per year to protect the OPEC cartel’s oil.
Why? If we had an energy plan, we wouldn’t need to do this.
Why indeed. I have no idea. But I suspect someone is getting paid…
Good hunting,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
