tv [untitled] May 8, 2012 3:31am-4:01am EDT
why oil and gas traders are fleeing the industry watch the kaiser reports to find out. max kaiser this is the ca's the report let's talk about oil gas the price of oil price of gas what makes these prices go up and down is it all for crazy stacey however tell me more well the first seven here the king of natural gas quids john arnold ahead from billionaire known as the king of natural gas is retiring at the age of thirty eight amid a slump in the price of natural gas for the last few years arnold
a former trader at enron has struggled to repeat the success that saw him generate returns in excess of three hundred percent in two thousand and six from trading natural gas right is the linda event of gas traders you know will get up in the morning member she said let's use making ten thousand or a thousand or of the number was there's a trainer who's been spoon fed profits for years by trading on inside information the market manipulation saying oh you know going to give me free money well i'm not going to trade anymore well maxie is a former enron trader so perhaps this is a sign that they're not able to rip off granny so easily well but enron trainers you know they metastasized and they they shut them down but they spread through the economic body and now the enron cancers everywhere well to put this is to put into context max a he was a former enron trader so a man who was an enron trader cannot make outsized returns in this market be this
is how the one percent versus the ninety nine percent here's a man who won't get out of bed for less than. three hundred percent is not enough money he only made nine percent last year also natural gas prices are now down to two twenty eight which is like one fifth of what the natural gas prices are in the rest of the world well two point nine percent rate of return compare that to what the average saver of the average pension fund investors getting on their retirement accounts or pension funds really closer to one percent one and a half percent because of the money printing and forest jack down of interest rates in washington and around the world means that savers are under writing and putting the money in the pockets of these speculators who you know are making nine percent which is five six seven times more than the average person but that's not good enough for them again arnold the pig comes to mind now next headline exxon makes
one hundred four million dollars in profit per day so far in two thousand and twelve while americans are stuck with a higher gas bill so last year exxon mobil one of the world's most profitable companies earned thirteen hundred dollars in profits per second as consumers paid record high springtime gas prices exxon posted first quarter profits of nine point four five billion exxon benefited from the high price of oil but analysts expected slightly lower profits due in part to the cheap price of natural gas which the company is heavily invested in so this collapse in the price of natural gas max is down fifty percent since last year this collapse is decimating energy companies and producers across the u.s. right exxon us fracking envy. those sachar are making engine margins in a very very short period of time no no they're not because they need they need prices to be five times what they are they're actually all going out of business
production is declining like this it's not going like this it's like collapsing all those investors have lost money that's the bubble of all bubbles that happen. and but again here is this split in the this is the most important ingredient to the u.s. consumer more than any single other thing on earth whether it's food because they don't eat food they don't eat wheat grain products that cause revolutions max and the rest of the world the only thing americans consume is gasoline and gasoline is the price that matters not the price of heating their home during the winter which is that natural gas price barack obama's plan is to convert all the cars in america and create six hundred thousand jobs to use natural gas but there's a big problem in that companies like exxon don't want to produce or they can't produce natural gas at two twenty eight is totally an economical remember just a few years ago the big rage among c energy producers was bio fuel then they figured out that actually more energy is required to go in than you can pull out
with biofuels completely inefficient they're at fracking what you're saying is that the cost of developing the fracking industry are much greater than any b.t.u. in energy and ultimately get out of this business if you look at the dollars and cents apples to apples comparison it's a complete waste of time and just destroying that only collateral we have which is the environment that's a good analogy to compare it to that because so when we went all in on bio fuels we didn't think of the costs which cause revolutions across the world as food prices skyrocketed due to the diversion of food to automobiles and here we are seeing the collapse of natural gas prices but at the cost of injecting unknown unmentionable unnamed fluids into the ground for just twelve months supply of because the average consumer out there they put the key in the ignition and they've got one thing on their brain dear they don't care what the costs are they don't care what the
economics are they just want to get slits they want to get they want to do it quick where the costs are. whoever's dead i don't care i got my jones to feed give me a sixpack right now for five bucks and again i guess so we're going to this headline the natural gas massacre president obama's energy policy as i talked about in the blueprint released last week the white house touts initiatives to encourage production and use of natural gas particularly for transportation it claims that developing the one hundred year supply of shale gas that the u.s. seems to have would support six hundred thousand jobs by the end of the decade but there is a problem max price natural gas is too cheap and the low price ironically is throwing a monkey wrench into obama's plans that's because the supply blue is caused in two for two reasons one the unnaturally warm winter which saw that the supplies now are forty eight percent over the five year average but also fracking as it is called
has some issues drilling these wells is expensive more expensive than conventional wells and gas production at these wells drops off sharply after a few months after year it may be down by seventy five percent and after eighteen months it may be down by ninety percent so to increase production more money must be invested the well can be riffraff for example we ride it for a few months but eventually a new well will have to be drilled nearby that will obama is the dog whistle president in this case the whistle is tracking natural gas you blow that dog and would go up like oh we can spin this with our communications department as jobs as energy independence says growth but the fact is it's totally an economic goal at last the sugar high for maybe eighteen months ahead of blows over just like biofuel the the blow to the dog was all get him oh boy that was that one for awhile but max what about this citizen themselves and what about the investor class because those we know president are all dogs ok they just like.
any you know they're that. that's all they are you so you know we can forget. these puppets up there they're nothing what about the citizen what about the investor class and in this case it no longer appeals to investors and drilling activity is collapsing in two thousand and eight the peak of the drilling bubble there were at one point over sixteen hundred rigs drilling for natural gas in the us during the financial crisis the recount fell off a cliff then recovered a bit but now is in freefall again last year at this time there were eight hundred eighty two rigs drilling for gas and last week there were six hundred seventy rigs that's because max with a normal conventional gas rig like exxon mobil or conoco phillips have you can you put all the money into to invest in it you have to drill the well but then it flows for years the natural gas comes out for years so you invest for the long term here you've got to make your money and in
a year get make back your investment so no wonder there are all these demands to like not tell the population what the heck is in the fluids they're pushing in there to get it out at all because it was so the top of the show gas price what are the prices what determines these prices there's a fundamental argument for the price of gas the price of oil then there's the price that set by algorithmic trading and computer trading and manipulation and the introduction of exchange traded funds and in the natural gas industry even though economically speaking the price does not support an industry it doesn't stop the central bankers the central planners from printing hundreds of billions to support me in the interim bubble at least the housing bubble lasted ten years this fracking bubbles only last six months and then you know the bubbles have to come fast and furious now you know they're not about gun running and cocaine training with the cia from mexico i'm talking about you know the fast and furious bubble machines and need to be pumped out like lawrence welk on crack or is
a lawrence welk on the frac the other thing to note about this is yes cracking needs a higher price and to twenty eight it has driven the price of. down so low that the conventional natural gas producers with real wells with real production are quote and shutting those down but you can't just like ramp it up a ramp it down like that it's it causes chaos and this is what this article is pointing out is that they're expecting a massive price spike suddenly because we have it an oversupply now but all those fracking rigs they're down because it's not you can't make any money on that so no investor is now going to go into it but goldman sachs the kingpin player in the natural gas and oil market they are the bank that sets the price around the world so they know the natural gas market more than anything m.x. they just said to people essentially to sell natural gas what does that mean they're the buyer yeah they want to control the sears monopoly position they're totally disrupting of these markets and then they benefit from controlling the
aftermath of the collapse that they themselves engineer whether it's the collapse of two thousand and eight you know whether it's building seven it doesn't make any difference they create the collapse they benefit from the collapse they engineer is a collapse and then they wonder oh we never saw it coming oh this happened we just haven't got a lot richer as a result our concentration of wealth to seven to get a lot more stupendous in the meantime it was an accident of the accidental going there i felt a billion on the street how does that happen the other thing i'm saying max is that goldman sachs is telling you to sell you should be buying if they're telling you to sell you can bet they're buying with both hands and also members of congress who are in trading as legal so they are going to fund their reelection campaigns. it goes on and on and of course in the disparities grow and the risk of coastal social cohesion risk as they call it increases and now finally on energy oil production costs are going up up up crude oil is getting awfully expensive to produce
according to a report from bernstein the marginal cost per barrel of oil rose eleven percent in two thousand and eleven year over year while that's in line with average recent growth it brings the cost to an astounding ninety two dollars a barrel as the analysts know another double digit increase this year will push the marginal cost of production above one hundred the analysis excludes opec producers where crude oil can be considerably cheaper to get out of the ground and much of the former soviet union as well focusing instead on the fifty largest oil and gas companies but it still has profound implications not only for energy stocks but for the low end of crude oil prices so the price of oil has bounced between ninety five one hundred and ten a barrel over the past six months so this is again the true cost of people this is what peak oil looks like this is how much across the tar sands people say oh you know we have tar sands and then a natural gas we have fracking but the cost to get that out costs a lot more than what you're used to right the biggest cost of producing energy is
the energy costs. them as energy cost goes up the cost of producing that energy goes up so it's a self feeding vicious loop of ever higher energy prices that are fed by cheap money and oh by the way the only the folks who are first in line of the cheap money can have enough money to buy the energy stacy ever thanks so much for being on the kaiser report thank you mags don't go away stay right there leave the graph goodman right after the break.
i welcome back to the kaiser report imax guys are time now to go to liam a graph goodman is an award winning journalist who was written for forbes the wall street journal barron's the financial times the guardian she's also the author of the asylum the renegades who hijacked the world oil market leader welcome back to the kaiser report thanks for having liam mcgrath goodman if the u.s. is now an oil exporter why is a price of gas a four bucks price of gas is a four dollars because we're now pegging our fuel prices to the overseas benchmark which is european oil which is twenty dollars a barrel higher than and over here in the u.s. which is really convenient for those who are saying you know that sounds wacky why
are we pegging to that overseas brand when we should be paying to w t o a west texas could almost texas intermediary i think the texas intermediate has been broken for a while and it's been widely acknowledged by those in the market but it's been taking a while for it to catch on it was saudi arabia that first sort of deserted it then iraq and kuwait and then wall street just decided well it's a mass and we're going to start taking everything to the overseas one that costs more which is very convenient the oil drillers here who are fighting gasoline are now selling it on the global market and making sure that it's going to be priced at a higher price not the u.s. price which is lower price right so the price was the benchmark but it became the brant became the benchmark saudis came in they they are now trading on the brant as the benchmark even though as a benchmark it's not as good. it's an inferior quality but in opens up the arbitrage where people are creating. paper for paper on top of paper
the underlying market for oil and stuff gets highly distorted right you have more to train for the traders that's sure and the saudis in kuwait and iraq are taking it to something called the argus index but it's similar it's our brand is sour it's the us we are actually supposed to be a more valuable oil but it's going against that it's a game to death where you mean speculators right like goldman sachs morgan stanley they're in their paper on paper on top of paper and the game is so heavily they've destroyed it as as a benchmark yeah the oil companies have done a good job too of controlling the pipelines and doing things that maybe aren't really useful to the rest of us so we'll explain to me who actually benefits from it which is trading in a ten percent discount to brant. is anyone actually able to buy at that price yes and up until recently conoco phillips controlled the seaway pipeline which magine its pipeline from cushing where all the whales kept the largest matter went on the west and pipes it out took off but what was happening was they are only piping it
in to cushing and it depressed the price of w.t.f. so it effectively overran and they were able to vent pipe it to the refineries buying it for the lower price putting it into their finders and then selling it at the higher vasoline price on the global market so it was an arbitrage play for them they just sold the pipeline so those who are now going to take over the pipeline they can do the same thing now your book is called the asylum and the renegade to hijack the oil market you're implying there that the people in this business are crazy now what's happened the last three years has it gotten any less crazy or more crazy i want to say the traders called it be a big name to be a phantom so i think they are trying to do stuff deprecatingly call themselves crazy. but it's so crazy it's a very much as the crazy quotient increase and. and i buy crazy quotient on the market no i don't think you can buy a crazy question yet but i do think that. in
a way you can say it's more crazy because we know now what's been going on and we're still not doing about it so it goes to show you that there's almost a level here that we've got and see that's superior to the one before where there are a lot of people still don't understand i think that's not the case in russia tell us about two thousand and nine when saudi arabia stop pricing their oil and west texas intermediate benchmark what is the why did the saudis stop pricing in it and what significance does the saudis had been complaining for a long time privately about speculators running amok as we know where prices went to over one hundred forty seven dollars in two thousand and then later in two thousand a very when term was thirty dollars and if your stock the saudis or anybody you're producing well you're like we just want to stable price for this you know we don't want to be you know hundred fifty and thirty and then who knows what it's going to be there heavily reliant on oil so they decided enough and they decided not to price it against west texas intermediate which the u.s.
benchmark and now they're pricing against our guest index of sour kurds and so they kind of threw it away. iraq also said yeah we're going to do that to you and we're going to do that and wall street said well if nobody cares about the benchmark anywhere we're going to start pegging everything to brant because it's higher price and the airlines finally figured out what's going on last year when they got seriously screwed on their hedges they were still using u.s. oil and they're hedging and they realized that nobody else is using anymore. money so goldman sachs driving up the price to one forty seven they cause the saudis to essentially break their link to the petrol dollar and that is a key component of this economy going back decades a natural dollar lng so now that's now been dismantled yeah i mean we've kind of wrecked our market and it's sad because our oil is the highly valued kind it's the kind that is refined more easily it's suite. crude oil overseas benchmark in europe and saudi arabia sour so it should be priced higher than our oil our own is
basically becoming just not respected this market is not respect our oil is getting completely dissed on these world markets basically now what about the airlines that are obviously impacted by oil what's going on with them more of them are starting to heads so what they do is they try to they try to hedge so that they get paid when fuel prices go up to get paid out a certain amount of money that will offset what they're losing in china ok but when the oil when these airlines go to the hedging business and they're hedging against these markets that are fabricated or they're not actually responding to real supply and demand they end up actually into the law of wall street then just captive of wall street because wall street comes as we get these hedging products and now like all these corporations in america they're reliant on their their their cash desk their their their money market desks driving their profits and revenues more than their underlying airline business right it's really sad that all these corporations are forced to hedge because we can't trust our market anymore to be stable and
that's really the story all right so how much oil is pumped from taxpayer owned land so how much does big oil for those rights this is terrible i'm glad you asked any u.s. thirty percent of the oil comes from this country that is drilled from land that we the american. federal lands or federal areas offshore in the gulf and a big start at two dollars an acre they can go higher but the point is why are two dollars and their nine hundred eighty seven prices back on oil is fifteen dollars a barrel why is it that this hasn't been revised i don't know they do pay royalties but they're very low royalties and we give away hundreds of millions of dollars of crude under our tax relief act from one thousand nine hundred five it's never been changed so we're actually giving away a lot of our oil and then they're selling a back to us at a price you know what the price ok so many politicians are saying. we need to open up these public lands for oil drilling people say yeah we need to open up these lands or they don't understand is that they do get opened or they're do get used
but the actual revenues to the consumer is lobbying and voting for this are virtually nothing for using more than we view since two thousand and three and our benefits are no greater impact i think it was the general accountability office separate losing billions of dollars here in revenue that's money that would go to taxpayers to us to you know build schools for health care and we're giving it it's a giveaway to well it's literally give away because as long as they keep printing food stamps now let's move on to the natural gas market the king of natural gas john arnold has retired you one of the last people to interview him tell us about the significance to his exiting the natural gas market well. i mean the natural gas market can't be game to where used to be in war and in the u.s. we have so much drilling going on now with horizontal drilling and the hydraulic fracturing which as you know it's very controversial but it's created a glut that's destroyed price and we still have very spiky gas prices which is
really the traders bread and butter you know because they buy low sell high from higher so he's out he's going to do philanthropy from now on i don't think he feels that he's going to make the kind of telling he used to this is actually a good lesson to america about what happens when a market is you know when supply is actually kept in the u.s. what happens when it's not exported what happens right now with natural gas prices in the u.s. being so low. fracking with unmentionable chemicals. is really not cost in there right we're talking fracking the consequences the cost of that is left completely off the books right i am not quite sure how bad it is but i do know that it's not transparent even if there are fracking on someone's land like if you had offered your land to trailers if there's a spill the d.d.p. does not let you know and you cannot find out what kind of accidents happen on your own property and what's sad is people who are finding out about those they don't care they want more drilling on their land because they're addicted to the money
they're making ordinary people making hundreds of dollars. so it's bad there is no imperative for transparency because people are just making too much money so they'll just water refinery from conoco phillips walked us through the strategy their old selves i believe is now hedging and used to just be southwest's south of us is always kind of held up as the beacon of progress in this intriguing because they were hedging. and now it's getting involved in hedging so having a refinery it just goes to show you that if you control supply and you're hedging you have a huge ads or people who are just playing with paper so speculators who are controlling refineries oil fields. that is the stuff we want to be watching because if you can control supply in your trading you can control parts of the market so this airline is now going to be not having to engage in a lot of off balance sheet trading of derivatives and strong tricks they've got the refiner right there to draw from the from the refinery yeah i fear if you're in
a position where you can control refineries and pipelines and just such it's going to be a lot easier for you to call the shots on the market instead of america calling the shots and i would say what else is trying to do is regain control over and out of control situation the best way that it can it will be interesting to see how it manages how an airline is going to try to do something or oil companies have been doing on the subject of refineries there are not actually many refineries in the u.s. or other we haven't had any new refineries but i mean i since one thousand seventy six and it is not really good business to be in because these are old and it's like trying to get a hip replacement for your grandmother and she's trying to run a marathon it's just impossible and so the problem is it's really trying to figure out how are we going to keep up with the demand that we have for fossil fuels they try to do upgrades on these are fighters but it's very difficult to keep up with the demand of us also interestingly the u.s. now has a surplus of natural gas and they can export natural gas but they have no facilities
to export natural gas so is this going to build facilities in time to take advantage of this natural gas surplus or because fracking is such a tertiary tangential business is going to go blow up in eighteen months anyway doesn't make any sense i think your question is well i would point out the natural gas to pay off and see you know screaming trolls on line being oh well drilling for was ok because it'll be just like natural gas where to lower the price and wait and see and the thing is national gets completely different cause we don't have export facilities whereas we well it's all about getting it out here and getting a better price so will they try oia. they're going to track read a time limit graph goodman thanks so much for being on the kaiser report thank you for having me oh. that's going to do it for this edition of the kaiser report with me max keiser and stacy herbert i thank my guests liam a grass goodman author of the asylum the running game to hijack the world's oil market do you want to send me an e-mail please do so at casa report it r t t v are you and so next time nice guys are saying by all.
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