The Actual Effect of Oil Speculation

Posted on March 2, 2012 by Ed Grady

We’ve been talking about the price of oil a lot this week on our blog. One of the major forces behind the price of oil is investor speculation, but what exactly is the actual effect of speculation on the price of oil. Well – a Forbes analyst has figured it out:

If there were no speculation in oil futures on commodities exchange, the price of a barrel of oil might be as low as $74.61– not more than  the present price of $108.00 a barrel.

But, there is plenty of speculation as the possibility of strife in Iran, one of the globe’s largest crude oil producers,  pushes up the price of oil futures, which in turn impact the price of buying crude oil in the open market. As of February 23, 2012 “managed money” held positions in NYMEX crude oil  contracts equivalent to 233.9 million barrels of oil– the equivalent of about one year’s crude oil supply from Iran to Western European nations like France, Belgium, Greece, Italy  and Spain.

As Goldman Sachs believes that each million barrels of speculation in the oil futures market adds about 10 cents to the price of a barrel of oil, this means that in theory the speculative premium in oil prices due to speculation is as much as $23.39 a barrel in the price of NYMEX crude oil.

In  turn oil analysts believe that every $10 rise in the price of crude oil translates into a 24 cent rise in the price of gasoline at the pump.   Using the 24 cent rise in the price of gasoline suggests that each dollar increase in a barrel of oil equals about $.56 per barrel.

So, if a barrel of crude oil is $23.39 higher because of speculative action in the commodity markets– this translates out into a premium for gasoline at the pump of $.56 a gallon. Since gasoline in the northeast is about $3.68 a gallon, this suggests that without any speculation, the cost of a gallon would be  only $3.12, a lot more favorable outcome.

As you can see, it plays an important role and a substantial role in elevating the price of oil and there are government regulations that can stop the speculation of oil. A few decades ago, you could only invest in the crude oil if you were capable of recieving barrels of oil – limited the people who invest in oil to people that use oil. Now, anyone can invest in oil through exchanges like NYMEX, and play money games to profit over global instability.

If you’d like more information, I would recommend following Stopping Oil Speculation Now on Facebook.

 

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High Oil Prices Will Change Our Lives

Posted on February 29, 2012 by Ed Grady

With so much talk (scare tactics or fact-based) about the sustained price of oil (and gas, and heating oil, and distillates), it is very important as consumers to really understand the implications of sustained high oil prices.

As discussed in a video clip shown in a previous blog entry, our country’s economic future is dependent on oil prices, but how would this affect you personally?

For one, this article explains that goods will become VERY expensive:

Virtually everything we eat, consume, and manufacture needs oil either to grow (nitrogen fertilizer produced from natural gas), make (plastics and fossil-fuel-powered factories), or move (trucks, ships, rails, and planes).
What happens when the price of oil goes up (and up)? Global supply chains, especially those for low-value goods, could quickly become prohibitively expensive. Wal-Mart’s made-in-China bargains are cheap so long as transport costs are low enough to enable affordable access to cheap overseas labor.

 

Wal-Mart no longer cheap? Can you imagine?? When gas prices go up we frequently see the costs of produce rise sharply to cover the costs of transport. Sustained high oil prices may see us becoming more dependent on local foods, farms and networks of distributing them.

It’s curious to think if there is a possibility where this becomes if not a possibility but a near necessity.

It’s eye-opening to think about, no?

 


 

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Everything You Wanted to Know About Oil Prices But Were Afraid to Ask

Posted on February 27, 2012 by Ed Grady

Why oil (and therefore gas and heating oil) prices are the way they are is not a simple explanation. Luckily, if you would like to hear a very good overall description of oil prices this weekend there was such a lengthy discussion on Chris Hayes’ morning show that featured an expert on oil markets.

This conversation highlights the complexity of the global economic markets, our county’s place in it, and the state of our physical commodities markets. This helps explains why oil prices are they way they are.
Keep in mind, high oil prices are difficult for you as the consumer (through your vehicles and if you take heating oil for warmth and/or water) but these prices affect our country’s economic viability. As mentioned, airlines are an end user that buy oil commodities. The higher the price of oil, the more the airlines spend on fuel which is passed on to you – or forces them to lay off people. The amount of products we use that oil is an “ingredient” in is staggering – making the prices of products we use go up. On our end, Grady Mechanical’s vehicles (large van’s that aren’t exactly efficient) use more gas, increasing our costs. The costs of the parts we use to service your systems increase, which makes prices go up as well.

Oil is intrinsically woven into everything our country does, and taming the price of oil is very important for our country’s future.

Also, the end of the clip answer the question: who controls Iraq’s oil now??

 

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Fill It Up For Less: Find the Best Pump Price

Posted on February 24, 2012 by Preston

If you’re sick of paying high prices at the gas pump, don’t feel alone.

The mere mention of gas hitting $5 a gallon is like a roundhouse kick to the face and, even worse – the wallet. We know we’re not alone in this opinion – but we DO have some solutions as to how YOU, our consumer-in-arms, can save at the pump and burn less gasoline at the same time.

COMMON SENSE SOLUTIONS

Keep It Cheap: Do you like to spoil your car by pouring premium gasoline into its tank? Don’t. There’s a good chance you’re wasting money on premium over regular – and it’s not providing much, if any benefit. If you’re driving a high-performance car, however, stick to the advice in your owner’s manual.

Don’t Drive Like You’re in Daytona: The faster or more erratic you drive, the more gasoline you’re going to burn. Period. There’s no need to travel at 40mph on the highway, of course, but reasonable speeds will help prolong more frequent trips to the pump. Keep in mind that repeated and rapid acceleration burns more fuel, and more money.

Get Them to Give Back!: Gas Rewards Cards… Everyone from Capital One to Stop & Shop are offering some form of gasoline incentives. From credit card cash backs to earning discounts for buying deli meats, the country is awash in opportunities to shave a few cents off of fuel bills. Only the question remains: Are you taking advantage of the give-backs available to you?

Find the Best Pump Price: By far the easiest way to save at the fuel pump is to find the cheapest gas in your area. Having trouble keeping track of dueling gas stations in your neighborhood? Check out http://www.gasbuddy.com/, a one-stop site that documents current gas prices at gas stations in your respective location. And they even have an app for that!

Don’t let the big fuel companies knock you around… Start saving money on gasoline today!!

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Gas Prices the Highest Ever for This Time of Year

Posted on February 21, 2012 by Preston

Our friends at the Associated Press are reporting that the gas prices we’re all confronted with at the pumps and in our oil tanks are the highest ever for this time of year.

Read on…

NEW YORK (AP) — Gasoline prices have never been higher this time of the year.

At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.

“You’re going to see a lot more staycations this year,” says Michael Lynch, president of Strategic Energy & Economic Research. “When the price gets anywhere near $4, you really see people react.”

Already, W. Howard Coudle, a retired machinistfrom Crestwood, Mo., has seen his monthly gasoline bill rise to $80 from about $60 in December. The closest service station is selling regular for $3.39 per gallon, the highest he’s ever seen.

“I guess we’re going to have to drive less, consolidate all our errands into one trip,” Coudle says. “It’s just oppressive.”

The surge in gas prices follows an increase in the price of oil.

Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that’s imported by U.S. refineries and turned into gasoline and other fuels. Its price has risen 11 percent so far this year, to around $119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the U.S., is up 4 percent to around $103 a barrel. That’s 19 percent higher than a year earlier.

Higher gas prices could hurt consumer spending and curtail the recent improvement in the U.S. economy.

A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion. That’s only 0.2 percent of the total U.S. economy, but economists say it’s a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 percent in the fourth quarter, a rate considered modest following a recession.

Gas prices are already an issue in the presidential campaign. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence – and lower pump prices.

“Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel,” Gingrich said at a campaign event in Los Angeles Thursday.

High oil and gas prices now set the stage for even sharper increases at the pump because gas typically rises in March and April.

Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gas are sold off before March, when refineries need to start making a new formula of gasoline that’s required in the summer.

That can mean less supply for service stations, resulting in higher gas prices. And summertime gasoline is more expensive to make. The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.

The Oil Price Information Service predicts that gasoline could peak at $4.25 a gallon by the end of April. That would top the record of $4.11 in July 2008.

The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That’s up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon.

Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington D.C. and California. This isn’t unusual – states on the coasts charge some of the nation’s highest gas taxes.

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America’s Last Chance for Oil Independence

Posted on February 20, 2012 by Preston

What are your thoughts about our country’s dependence on foreign oil?

A commentary by the folks at Canada Free Press posed that very same question in a long-winded & somewhat one-sided (if not well-intended) Saturday publication. Their gist was simple: Vote OUT the Democrats & vote IN the GOP – then all our answers will be solved. But the answers are not so simple or partisan.

And while their version of the outcome of the 2012 Election paints a questionable picture of full of cheap gasoline, tax breaks and figurative pipelines overrunneth with domestic oil, it does raise a good question-how much longer can we allow ourselves to remain dependent on foreign oil resources?

Although The United States is the third largest producer of crude oil producer, about half of the petroleum we use is imported. But while statistics show that our dependence on foreign petroleum has declined since peaking in 2005, that dependence is still subjected to outside forces well beyond our control.

We may never eliminate our need to import oil, but in the interim we can reduce cartel market control and the economic impact of price shocks by reducing our demand. Congress made a step by passing legislation to decrease our dependence on oil by increasing fuel economy standards on new cars and trucks to 35 mpg by model year 2020 – a move that could reduce our petroleum use by 25 billion gallons by 2030.

And – based on the rumors that gas is quickly headed towards $5/gallon – fuel economy standards can’t come fast enough!

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How Much Money Do WE Make When the Price of Oil Increases?

Posted on February 15, 2012 by Preston

The latest & greatest installment of our “Ask A Contractor” series has been released – Providing YOU, the consumer, with helpful advice & the answers to all your Heating, A/C & Oil questions!

Q: You Must Make a Lot of Money When the Price of Oil is Expensive, Right?

A: That logic is entirely false. FUN FACT: We’re the middle man. When the price (per barrel) increases the (consumer) price goes up. We operate at a fixed margin so, when the oil price itself goes up, all of our operating costs go up. We don’t make any more – in fact, people take more when the price is lower, which helps improve business. So, the logic that we’re making more money when the price is higher is not true.

To view Mike’s video response, log on to: http://www.youtube.com/watch?v=EHiHj69HZ3k&feature=youtu.be

 


 

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Here’s Why We LOVE Name-Dropping!

Posted on February 13, 2012 by Preston

We here at Grady Mechanical love to do business with loyal customers – And, to show our appreciation to our dedicated clientele, Grady Mechanical is rewarding every customer with a $10 VISA Gift Card for every referral they send our way.

IT’S THAT EASY! No catch, no hidden stipulations. Simply have your friends and family use one of our many services – Heating, Air Conditioning & Oil Delivery – and we’ll send you a FREE Gift Card when they mention your name!

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F&S Oil Company Auditor Pleads Guilty to Bank Fraud

Posted on February 10, 2012 by Preston

From our friends at LoanSafe.org:

(Source: FBI) – The United States Attorney for the District of Connecticut announced that DALE K. CICCARELLI, 57, of Southbury, waived his right to indictment and pleaded guilty today before Senior United States District Judge Alfred V. Covello in Hartford to one count of conspiracy to commit bank fraud and one count of aiding and assisting the filing of a false federal tax return. The charges stem from CICCARELLI’s role in a scheme by principals of F&S Oil to defraud Citizens Bank of millions of dollars.

According to court documents and statements made in court, CICCARELLI, a Certified Public Accountant, served as the external auditor for F&S Oil Company Inc. (“F&S Oil”), which was in the business of providing heating oil to residential and commercial customers in the Waterbury area.

As primarily a seasonal business with fluctuating cash flow, F&S Oil needed access to a banking line of credit to conduct its business on an ongoing basis. As a result, F&S Oil had a banking relationship with RBS Citizens, NA, (“Citizens Bank”), which included three outstanding lines of credit or loans secured by the assets, inventory and receivables of F&S Oil. Citizens Bank would routinely extend funds to F&S Oil under the existing line of credit based, in part, on information provided by Christopher Carr, the President of F&S Oil, including F&S Oil’s certified financial statements, and periodic submissions of borrowing base certificates. The borrowing base certificates would itemize F&S Oil’s total gross accounts receivable and would include a listing of the aging of the receivables and a total fuel inventory. In or before August 2006, as F&S Oil experienced cash flow problems, Carr falsified the accounts receivable listed on the borrowing base certificates to support a $4.5 million line of credit from Citizens Bank.

In the Summer of 2006, Carr also falsified F&S Oil’s financial statements, which fraudulently overstated assets and liabilities, namely the accounts receivable and unearned customer payments, in order to support the false figures that had previously been provided to the bank. At that time, when reconciling the financial statements with the detailed F&S Oil books and records, CICCARELLI learned of the discrepancy between the true receivables and those listed on the financial statements and the borrowing base certificates previously provided to the bank. Carr instructed CICCARELLI to adopt the false accounts receivable and unearned customer payments in certifying the financial statements to support the false borrowing base certificates.

On August 24, 2006, CICCARELLI falsely certified the accuracy of F&S Oil’s financial statements for the fiscal year ending March 31, 2006. F&S Oil provided the financial statements to the Citizens Bank, which continued to extend monies on a line of credit until February 2008.

In August 2007, CICCARELLI again falsely certified the accuracy of F&S Oil’s financial statements, which he knew continued to misrepresent the relevant financial information from the 2006 certified financial statements.

In pleading guilty, CICCARELLI also admitted that he knew that Richard A. Stevens, the owner of F&S Oil, and other employees of the company were using F&S Oil monies to pay non-deductible personal expenses, as well as non-deductible wages for no-show employment of others. Nonetheless, CICCARELLI prepared F&S Oil’s corporate federal tax returns, deducting the above items as legitimate deductible business expenses.

Judge Covello has scheduled sentencing for May 1, 2012, at which time CICCARELLI faces a maximum term of imprisonment of eight years.

On May 24, 2011, Carr pleaded guilty to one count of bank fraud. He awaits sentencing.

On August 11, 2010, Stevens pleaded guilty to one count of willfully filing a false U.S. tax return. On March 3, 2011, he was sentenced to five months of imprisonment, followed by five months of home confinement.

This case is being investigated by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation. The case is being prosecuted by Assistant U.S. Attorney Christopher W. Schmeisser.

This article was written by Evan Bedard.

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Storm Preparation: Keeping the Power On

Posted on February 8, 2012 by Preston

From the Hartford Business Journal:

The attitude toward Connecticut electricity has shifted.

For the past several years, all the discussion focused on lower prices and renewable energy. The two widespread power outages in 2011 changed those talks to utility performance standards, infrastructure hardening and emergency preparation and response.

Following Tropical Storm Irene in August and an October snowstorm that each led to nearly 1 million ratepayers losing power – some in excess of a week – an irate public and government officials pointed the finger at the state’s utilities, particularly Northeast Utilities subsidiary Connecticut Light & Power.

Following several studies into the preparation and response to the storm, Malloy made several recommendations to prevent great loss of power in the future.

The top issue will be legislation allowing the Public Utilities Regulatory Authority to develop performance standards for utilities for major events, and using penalties to enforce those standards.

Malloy is also calling for improvements to the utilities’ mutual aid system, increase tree trimming by both the state and utilities, and developing a pilot program for mini-power plants to keep electric generation near population centers.

Hartford-based Northeast Utilities refused to comment for this story.

New Haven electric utility United Illuminating wants to wait and see what legislation comes out of Malloy’s recommendations and the other storm response reports, spokesman Michael West said.

Because of the shorter legislative session – Feb. 8 to May 9 – there’s only so much that can be accomplished, West noted.

Sen. John Fonfara (D-Hartford), co-chair of the legislature’s Energy & Technology Committee, said after years of pushing utilities to provide lower prices, it is unfair and irresponsible to put all the blame on the utilities.

Malloy’s recommendations also call for advanced training and preparation for storms, as well as better communication between utilities and state and local officials.

The key is finding the proper balance between price and the cost of preparation, Fonfara said. Connecticut currently has the third highest electricity rates in the nation, behind Hawaii and Alaska.

“I want to find out if any state is prepared to the level being recommended here,” Fonfara said. “Let’s see what the appetite of the governor, the legislature and the public is to get to this level of preparation.”

The legislature also will tackle other issues coming out of last year’s major energy policy reform bill that created the Department of Energy & Environmental Protection and pushed to make Connecticut a leader in clean technology.

The Energy & Technology Committee will address supporting more zero-emissions power plant projects, creating a program where clean technology improvements can be paid for like a mortgage and developing a conservation fund to weatherize homes heated by fuel oil.
The fuel oil efficiency fund is a major issue for Connecticut Fund for the Environment, said staff attorney Charles Rothenberger.

Homes using electricity or natural gas for heat are eligible for weatherization programs under the Connecticut Energy Efficiency Fund. As 52 percent of Connecticut homes use heating oil, a conservation fund will drastically reduce fossil fuel consumption in the state, Rothenberger said.

“It is important to tackling our goals for reducing climate change,” Rothenberger said.

This article was composed by Brad Kane: bkane@HartfordBusiness.com

 


 

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