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China Tightens Grip on Africa’s Energy Resources with Stake in Offshore Field

Today a topical post the latest from Money Morning, which as I previously explained will be featured here whenever they have relevant material to offer. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story.

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China Tightens Grip on Africa’s Energy Resources with Stake in Offshore Field

By Jason Simpkins Managing EditorMoney Morning

CNOOC Ltd. (NYSE ADR: CEO) and Sinopec Corp. (NYSE ADR: SHI) have agreed to buy a 20% stake in an oil field off the shore of Angola for $1.3 billion, illustrating China’s persistent attempts to acquire resources for its economic expansion at a time of weakness for many Western oil majors.

CNOOC and Sinopec will form a 50-50 joint venture to buy the stake in the so-called Angola Block 32, which has 12 previously announced discoveries. The Chinese energy giants purchased the stake from U.S.-based Marathon Oil Corp. (NYSE: MRO), but the sale is still subject to government and regulatory approval.

Marathon’s existing partners in the block – France’s Total SA (NYSE ADR: TOT), Portugal’s Galp Energia SGPS SA, Exxon Mobil Corp. (NYSE: XOM), and Sonangal, Angola’s state-owned oil company – have a right of first refusal. Marathon will keep a 10% interest in the block.

The oil field “is a significant resource base with estimated recoverable light crude oil reserves of 1.5 billion barrels,” Goldman Sachs Group Inc. (NYSE: GS) analysts wrote in a report, according to MarketWatch. “The $1.3 billion consideration compares with our valuation of $1.4 billion to $1.65 billion and Marathon’s publicly disclosed offer of $1.8 billion to $2 billion.”

The acquisition will build on CNOOC’s “growing deepwater exposure” and values the recoverable reserves at $4.30 a barrel, the analysts said.

The acquisition will also build on two of Beijing’s broader objectives: Securing long-term energy resources and expanding its presence in underdeveloped, and riskier, countries in Africa and the Middle East.

Since last fall, China has been using the Western world’s financial crisis as an opportunity to stock up on commodities while prices are low.

Sinopec recently paid $7.22 billion to acquire the Addax Petroleum Corp., a Canada-based energy company with operations in West Africa and Iraq. Meanwhile, Sinopec’s rival, China National Petroleum Corp. (CNPC), made its own foray into Iraq, winning the first contract in more than 30 years to develop the Rumaila oil field.

China’s involvement in Africa has an even richer history. In 2006, Beijing hosted the China-Africa Cooperation Forum – an event attended by more than 40 African heads of state. At the forum, China unveiled $9 billion in preferential loans, export credits, and trade incentives – all part of a strategic plan to achieve a preferential status with key African nations.The meeting was more than a mere publicity stunt to play up Beijing’s humanitarian efforts. It was a symbolic acknowledgment of growing cooperation between the regions.China has invested tens of billions of dollars directly into African-infrastructure and social-development projects, all in an effort to tighten its grip on the continent’s resources. Some examples:

  • In Freetown, the capital of Sierra Leone, office blocks, military headquarters and a refurbished stadium are all the work of planners from Beijing.
  • In Uganda, the new State House was built with Chinese money.
  • In the city of Rwanda, Chinese companies built 80% of all new roads.
  • And in Nigeria, China’s Civil Engineering Construction Corp. is building an $8.3 billion railroad linking Lagos and Kano.
  • And Money Morning Investment Director Keith Fitz-Gerald says this is only the beginning.
    “It’s a virtual certainty that China will maintain this policy going forward,” Fitz-Gerald said. “My contacts in China and Africa have told me point blank that China’s leaders ‘don’t care about human rights or nukes or hostile governments.’ What matters is anyone who provides oil to China no matter what the rest of the world thinks.”

    [Editor’s Note: In a market as uncertain as the one investors face now, it helps to have a guide. And the ideal guide is The Money Map Report, the monthly investment newsletter that’s a sister publication to Money Morning. In fact, a new offer from Money Morning is a two-way win for investors: Noted commentator Peter D. Schiff’s new book – ” The Little Book of Bull Moves in Bear Markets” – shows investors how to profit no matter which way the market moves, while our monthly newsletter, The Money Map Report, provides ongoing analysis of the global financial markets and some of the best profit plays you’ll find anywhere – including such markets as Taiwan and China. To find out how to get both, Check out our latest offer. ]

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    July 22, 2009 - Posted by | Africa, China, ExxonMobil, Money Morning, Total, XOM

    31 Comments

    1. These posts from Money Matters seem to be hyping oil markets.

      Comment by Benny "Boom, No Doom" Cole | July 22, 2009

    2. Oh the irony, and President Obama has just canceled production of the F-22 Raptor.

      Comment by Markus Koubouter | July 22, 2009

    3. I have sat across the table with Sinopec reps. These are pretty aggressive guys, and they are looking for exposure to major oil field development potential. I know of one large deal that fell through. And don't forget CNOOC trying to take out Unocal a few years ago. In my experience, the Chinese drive for secure oil reserves is very real.

      Comment by armchair261 | July 22, 2009

    4. There's a bible prophecy about an army of 200 million men crossing the Euphrates and killing 1/3 of mankind. It didn't make a lot of sense when I heard it as a kid. There isn't much on the other side of the Euphrates if you're the "Kings of the East". Just western Iraq,Saudi Arabia,and Africa. The US is obligated to defend KSA from all external threats. To stop an army even a fraction of that size,we'd have to go nuclear. Let's hope China stays in the mood to purchase these oil resources,and that the sellers don't mooch on the deals.

      Comment by Maury | July 22, 2009

    5. Benny,You frequently comment on oil market hyping, and then I respond because I don't get your perspective here. So, two questions that may help me understand your reasoning on this.1) Why is hype always upward? Why wouldn't Money Matters short oil, and then spread oily doom and gloom?2) Why would someone like Valero, who buys about 1.4 million barrels of oil per day and produces zero, fall for such a transparent scam? If hype is a serious factor on the global scale, then I'd think we'd be hearing equally strident anti-hype from refiners and airlines, etc. I have to assume that buyers are as smart and as resourceful as sellers. Otherwise you seem to be suggesting that the buyers are easily fooled and just go along with the gag.

      Comment by armchair261 | July 22, 2009

    6. the intent/strategy/plan of the Chinese is a subject of question?the chinese POLs will do whatever is required to still the billion + Chinese demand for better lifestyle. China won't utilize military methods; there is no need unless provoked by a rival. there are few current rivals who have the "stones" to last the struggle.based upon recent monetary agreements[using direct exchange with their renmimbi], they will achieve their ends on their own. everyone else of consequence is bankrupt and on the "international dole".Fitz-Gerald and MM are not absorbed with energy/oil. these get equal play with many other issues.fran

      Comment by Anonymous | July 22, 2009

    7. Armchair-Okay, here is my view:Hypsters nearly always hype up, not down. More on the upside. You can only go down to zero, and in the case of oil, only down to say $10 or $20. So, you can only down by 50 percent, or up by 200 percent. More money on the upside. There are short-sellers, but that is tough game.Oil exporting nations have a stake in higher oil prices. It would behoove them to game the NYMEX. Indeed, one could argue that prolonged lower oil prices would lead to radically lower living standards and regime change in Russia, Venezuela, Iran, and several other nations.If I were Putin, of course I would game the NYMEX. Putin and other oil exporters have billions of dollars at their disposal (no problem like the Hunts had in silver markets in the 1980s–they ran out of money to keep goosing silver prices). They can even invest in funds that leverage. They can cloak their identities by trading through other, unregulated offshore entities. In short, they would be foolish not to game the NYMEX, and we would be foolish not expect they are gaming the NYMEX. I suspect oil exporters have hired buzzmakers to boost the "Peak Oil" scare scenario. They may fund websites such as The Oil Drum, perhaps indirectly. They can always hire a TOD editor to produce a "white paper" on oil markets, and then say they want one next year also, and that they read TOD closely. The editor gets the point. And what is $50k to Putin or KSA?Through PR agencies, they can pitch columnists and others on the dangers of Peak Oil etc, or raise concerns that there is a lithium shortrage.Certainly, the Peak Oil Scare dominated the energy news space for years. Remember, demand for oil is price inelastic short-term. If you can goose the price, demand does not fade in a year or two. Takes longer. It is the perfect market to goose.Yes, they overgoosed it to $147. Demand destruction at that price point was immediate. Long-term destructive forces were set into motion.Still, oil exporters are ahead by a couple trillion. Not a bad return on an investment. I suspect now oil should be trading at $25-$35, but is propped up by NYMEX gaming and "oil shortage in the future" scare stories.

      Comment by Benny Boom | July 23, 2009

    8. "More money on the upside."Hmmm… At current prices, by most estimates we're about at the cost of the incremental new barrel (i.e. significant new reserves developed).From here, any realistic upside in the near term may be +$20 to +$30, but the plotters are not taking it. The downside by your numbers may be -$30 to -$40. You're saying people don't want to make a ton of money shorting because they can make two tons going long. A higher risk game to go short, sure. But if the technique is so effective, and we assume some will be satisfied with one ton, then we'd surely be seeing a lot more people doing it, I think. We'd see lots of anti-hyping too. Not very convincing. "Oil exporting nations have a stake in higher oil prices. It would behoove them to game the NYMEX."1) And it would behoove oil buyers to game the Nymex in the opposite direction, right? I'd think it would be relatively easy to debunk hype with hard data. The USA, the EU, Japan, and most big importers would pay a lot for anti-hype in your scenario. We'd be hearing about new reserves in the Arctic or new recovery technologies etc.2) You're still assuming that buyers are less intelligent and/or less informed than sellers. I have to disagree. If it doesn't fool you, it's probably not fooling the big buyers either.3) If oil prices are so easy to manipulate, why did oil remain around $20-25/barrel between 1986 and 2003? Sure, demand was weak… but why not come up with a ruse?4) Rounded to the nearest 10,000, how many people do you think are in this conspiracy? Governments, analysts, consultants, bloggers…. all being paid off?5) How do you explain the similar price behavior of many other commodities in recent years? Everyone was hyping at the same time?6) It's hard to claim that the spectacular rise in the highly fragmented housing markets all over the world a few years ago was due to some conspiracy. How do you distinguish between real market perceptions among many players versus gaming and conspiracy? Why for example can you accept that housing volatility had its roots in the market, but that similar price swings in oil has to be evidence for gaming?"And what is $50k to Putin or KSA?"A lot less than $1 million from Oprah and/or Doubleday.

      Comment by armchair261 | July 23, 2009

    9. Ben,Assume that a refinery just makes a very reasonable profit of 5 per cent on a barrel of oil.If the refinery pays $25 for that barrel , the refinery makes &1.25 profit per barrel. 100,000 barrels at $1.25 profit per barrel makes the refinery a mere $125,000 bucks. Oil at $250 a barrel however makes makes them a cool $1,250,000 with the same "reasonable" profit margin..That's why OPEC, the oil exploration companies and refiners love it when the price of oil gets run up.Eventually, of course, the consumer gets fed up, stops buying and "demand destruction" begins to take place to bring oil prices to a reasonable level.By then it's already too late and the oil bandits and speculators have once again fleeced the American consumer out of multiplied BILLIONS.Lots of motivation to manipulate oil prices to the upside, Little incentive to manipulate prices to the downside.The oil companies will steadfastly maintain that they are not "fleecing" any one, "because their modest profit margin of just 5 per cent was maintained throughout the entire price spike rip-off.John

      Comment by Anonymous | July 23, 2009

    10. Armchair-Unfortunately, the United States does not have a mechanism in place for surreptitiously gaming the NYMEX. For all of our many flaws, that is not something we have ever seen (or, we lack the cunning of a Putin). It might be something a Japan or another nation could pull off, but remember, it would have to be a system where there is easy access to billions of dollars without explanation. In other words, an oil thug state. The KSA does not have to explain why it choose to transfer a few billion to a Swiss bank account. That does not work in a democracy. I think the number of people necessary for oil thug states to game the NYMEX is in the dozens. And remember–some players are merely following their charters. An oil fund that trades long in oil would attract investors based on its charter. No compulsion or secrecy involved (though the identity of the investors is shielded). In fact, once money managers learn there are investors out there for oil funds, they start forming oil funds. On the the case of the perhaps hypothetical TOD editor who received $50k from a New York-based PR shop to author a "white paper" on oil markets: What story does he have to tell? The PR shop hired him for a job, to make a prediction of the market for next year. The TOD editor has no evidence of anything, except that he has become a voice in oil markets. What convincing story would he have to tell, although he was informed the ultimate clients were very pleased with his work? And, he would risk locing the $50k for next year's white paper, while simultaneously informing the world of his easy corruptibility.The housing bible was caused by easy credit. A totally different market, and no, there was no gaming of housing markets, as there is no NYMEX for housing. A straw man.Armchair, get up out of that armchair! Really, I have seen markets gamed, and stocks pumped-and-dumped and all the rest in a 20-year career in financial journalism. The oil spike looked gamed. The market right now looks propped up. For what it is worth, perennial doom-and-gloom man Dave Cohen said oil should be $20 under where it is now, based on supply and demand. I don't know why he said that, but he did. I happen to agree with him. Also, remember, a plan to game the NYMEX can be coordinated with OPEC oil production. This is a nice combo punch. I can game markets, and then announce a 4 mbd cut in production (and effect it also). I would simply be stupid not to go long on oil and then not cut production by 4 mbd, the way OPEC did. Crikey, this is like a rich guy trying to get laid in a brothel. A sure thing.

      Comment by Benny "Boom, No Doom" Cole | July 23, 2009

    11. Anon,Sigh. How is it that the US public has developed such a paranoid view of the oil industry?"Oil at $250 a barrel however makes makes them a cool $1,250,000 with the same "reasonable" profit margin."This is a meaningless statement. First of all, when the price of oil goes up quickly, profitability will increase for oil producers. I don't understand your illustration, where it stays at 5%. Secondly, profitability is a function of not just price but also production costs. Let's suppose an oil company makes a 5% profit on $1 billion in revenues (i.e. it has COGS of $950 million). What difference does it make if those profits are made in refining or production? Would you care if it was your money?"That's why OPEC, the oil exploration companies and refiners love it when the price of oil gets run up."You may have heard that refineries buy oil for a living. Explain to us why Valero, the largest US refiner at about 1.4 mm barrels per day, and which produces no oil at all, likes high oil prices. This comment shows very little knowledge of the industry, or general business principles. Please name a few other industries where an increase in cost of goods sold is a good thing."Eventually, of course, the consumer gets fed up, stops buying and "demand destruction" begins to take place to bring oil prices to a reasonable level.By then it's already too late and the oil bandits and speculators have once again fleeced the American consumer out of multiplied BILLIONS."Uh-huh. After a spike in 1981, oil dropped below $30 per barrel in 1983. It didn't reach $30 again until 2004. You're suggesting that OPEC and the evil oil companies took a 21 year breather in fleecing the public? What other products can you name that didn't increase in price during those 21 years?Global oil demand peaked in 1Q 2008, when oil averaged about $100 per barrel. We're now at $65. Looks like there's room for about $35 more fleecing. Why aren't they taking it? "Lots of motivation to manipulate oil prices to the upside, Little incentive to manipulate prices to the downside."Suppose I get a group of guys to short a lot of oil, say 1 million puts at $55. I then arrange to plant some bearish stories for, oh, say, $100K (after al, you believe this is happening on the upside). Oil drops $2 per barrel. I make $2 million on $100K in a day or two. Now, you say oil prices are easily manipulated, so tell me why I wouldn't want to do that? "The oil companies will steadfastly maintain that they are not "fleecing" any one, "because their modest profit margin of just 5 per cent was maintained throughout the entire price spike rip-off."Wow. No further comments needed. Anon, I suggest you put away the spy novels, and read Econ 101 plus a few books on how the oil industry works.

      Comment by armchair261 | July 23, 2009

    12. "A Conversation with Robert D. Kaplan" by Michael J. Totten on July 2, 2009:MJT: So you just got back from Sri Lanka. What did you see there? What did you learn?Kaplan: The biggest takeaway fact about the Sri Lankan war that’s over now is that the Chinese won.

      Comment by Robert Schwartz | July 23, 2009

    13. Benny,I will repeat what I said to anon:"After a spike in 1981, oil dropped below $30 per barrel in 1983. It didn't reach $30 again until 2004. "When you can explain why the gamers took a 21 year holiday, we'll talk more. And when you can explain the similarity of oil's spike to many other commodities, I might start thinking you have a point. I'm wondering why the gamers appear to only have an attraction for oil. Are they doing it in iron ore too, for example? And are the iron guys coordinating their gaming with the oil guys? Might it not have something to do with perceptions of future global demand and a weakening dollar? Until then I think you're resorting to intrigue where none is necessary to explain the events. At the very least I would want to see hard evidence, not conjecture such as "It would be in their interests" etc. Especially when "it would be in sellers interests" can be neutralized with "it would not be in the buyers interests." Plus, I'd like to hear some estimate of how much stroke gamers have versus markets. You seem to suggest they dominate. We saw gamers powerless against a $110 drop in prices recently. I could see where traders on both sides would want to promote stories to advance their negotiating positions, but how much are the stories really worth in terms of dollars per barrel? You assume it dominates. Seems like a chicken and egg story to me. Why do you so eagerly assume the chicken came first?And it would take more than dozens of conspirators. If planted stories are false, then there are lots of people in the field, on the front lines who will know something's up. For example, certain field production supervisors in Nigeria where production is humming along, read of some pipeline rupture in their field. Maybe I have an old friend in Alaska and I read about some steep decline at Prudhoe. I call him up. He says "Huh?" You assume a disconnect between the field and the financial world. I don't believe this, and I simply don't believe it can be maintained with a few handfuls of people.My personal opinion is that there is a large number of people simply do not like the oil industry, because of Valdez, or price increases, or whatever, and just want very much to believe that prices are manipulated. This makes sense out of their universe, because it gives them a villain. But they will willingly accept market forces in price setting for just about everything else. Housing triples in Phoenix in three years? No problem! Oil goes from $35 in 1981 to $50 in 2005? Conspiracy!Finally, what story to tell? For dozens of years, you say, dozens of people have hidden this story. Any one could make millions spilling it, much more than OPEC would want to pay, especially if OPEC had ot pay them all off. Any one guy could have pangs of conscience or find Jesus or whatever. And this hasn't happened, not once? Very odd.I'm sorry Benny, but I don't buy it. I want to see evidence that 1) it's happening on a global scale, and 2) that it outweighs, by far, market effects.

      Comment by armchair261 | July 23, 2009

    14. Aemchair said:"Explain to us why Valero, the largest US refiner at about 1.4 mm barrels per day, and which produces no oil at all, likes high oil prices."——————————–Valero had one of their most profitable quarters EVER when crude was at $147 a barrel.Crude oil prices can certainly affect profits but there are lots of other factors involved.John

      Comment by Anonymous | July 23, 2009

    15. Armchair-Well, since the players involved must be necessity cloak their identities, and the CFTC does not have the subpoena power or even investigative powers requisite to plumb the oil futures market, I cannot proffer proof.However, I will leave you with this thought: It is a matter of historical record that the Hunt Bros. gamed ("cornered" was the word we used back then) the silvers future market in the 1980s.All of your arguments would seem to apply to silver markets of the 1990s–yet the Hunt Bros did in fact corner and game the market. They did so with the merest sliver of financial resources that oil thug states have, and they did so without the ability to curtail new physical supply.If the relatively scrawny Hunt Bros could corner silver markets, why could not the powerful oil exporting nations game oil futures markets? BTW, if you follow my posts, you know I am a fan of oil and gas developers, especially the latter. I am so impressed with the shale gas guys, and their ability to develop epic supplies of gas, evidently for decades upon decades to come. In general, I admire engineers, and productive people, from a janitor to a nuclear physicist. I have a much different view of the thug states.

      Comment by Benny "Boom, No Doom" Cole | July 23, 2009

    16. anon,In 2008, Valero made $2.879 billion income on revenues of $119.114 billion. That's a profit margin of 2.4%. WTI averaged $99.67 last year.In the third quarter of 2008, when oil prices peaked, Valero reported earnings of $1.152 billion on sales of $35.960 billion, for a profit margin of 3.2%.In 2004, before prices started taking off, they made $1.804 billion on $54.619 billion sales, for a profit margin of 3.3%. WTI averaged $41.51 in 2004.There were extended periods in late 2008 where oil was selling for more than gasoline on a per barrel basis. Why do you think refiners conspired to lose money? It's stunning to me that anyone would believe that an increase in COGS should be good news. The cost of wheat triples, and the baker should celebrate? You yourself said "Eventually, of course, the consumer gets fed up, stops buying and "demand destruction" begins to take place to bring oil prices to a reasonable level." So, as you say, at some point increasing COGS HAD to be bad news for refiners, right? To see what happened, reread my previous paragraph.Please. Approach the issue as a scientist or an investigator. Consider evidence. Quit wallowing in silly conspiracy stories unless you have solid data (not hunches and not prejudices) to back it up.

      Comment by armchair261 | July 23, 2009

    17. Benny,Consider:1) Silver is a much smaller market than oil. Yes the Hunt brothers are known to have tried this. A smaller conspiracy was busted. They lost their shirts. 2) Thug states may be secret… but there is still the ground link. I know expats who work for Saudi Aramco. I have contacts at Qatar Petroleum and PDVSA. You would need these people to also be quiet…. even after their tours of duty ended and they went back home. And if you'll recall, OPEC production increased steadily for many years and peaked in 2008. If OPEC REALLY wanted to game the system, they could report a down year or two, claiming capacity problems. But they didn't. They kept increasing production.I believe that if high recent prices were purely (or mostly, or even significantly) an artifact, we would see seriously squawking by large buyers. And yet the Valero's of the world are buying their 85 million barrels a day. They seem to be saying it's a fair price, or there would be extended downward pressure to your $20 number. Yet we've seen the Valero's buying steadily from lows in the $30's into the recent $70's. The message I get when I read your post is that you know more than they do, and with all due respect I find this to be a real stretch. Not impossible… 🙂 But not very likely either.Thanks for your comments on developers. I think the public vastly underestimates the extent to which improving technologies have kept prices lower than they would have been otherwise. If we were still using 1980 technology today, the global oil and gas reserve base, and therefore production, would be a lot smaller than it is today.By the way, I do think that housing, or dotcom stocks, copper, or tulips in Holland, are appropriate analogies for oil. Each had its own circumstances and demand/supply issues, but each shows how the human mind is capable of running up prices in anticipation of never ending growth and a sufficient supply of greater fools.OK I think we've beat the dead horse pretty badly here.

      Comment by armchair261 | July 23, 2009

    18. You win–I am talked out.

      Comment by Benny "Boom, No Doom" Cole | July 23, 2009

    19. I think it's pretty bizarre that Chinese companies have made some legitimate business deals, and already people are talking about USA declaring war on China.

      Comment by bc | July 23, 2009

    20. hhh

      Comment by Benny "Boom, No Doom" Cole | July 23, 2009

    21. Another common misconception is that speculators only buy and hold assets. More accurately, speculators try to benefit from fluctuations in prices. In other words, speculators cannot profit from sustained high prices, only from changing prices. So, yes, the recent volatility in the oil market can certainly be attributed to speculation, but speculation cannot support an extended price rally. The same banks that we bailed out are major players in the energy markets: Citigroup, through its Phibro commodities-trading subsidiary, and Goldman Sachs, through its energy-trading desk. Banks are most likely playing a key role in the current run by putting the bailout money to good use: to continue the bid for oil. Again, just a fraction of the bailout is enough to corner the market and rig the price of crude — not that any of these players would dare do so.There is no doubt that the banks and other speculators need accountability and transparency. But smaller speculators — like hedge funds and other trading firms — play a role in maintaining liquidity and reducing the impact that oil suppliers have in participating in the market. Those speculators might benefit from volatility, but without them there would be even more volatility, resulting from radically rising prices.Technically, NYMEX has placed limits such that no one firm can control more than 20 million bbl. of oil. Then again, a previously unknown energy-trading company called Vitol controlled 11% of the open interest on NYMEX at one point last summer, which amounted to four times that. Around the same time, SemGroup, a large oil-distribution company, filed for bankruptcy after losing $2.4 billion on a short position that also dwarfed the supposed limit.Officer, a regular contributor to TIME.com, works at a Chicago-based proprietary trading firm.

      Comment by Benny "Boom, No Doom" Cole | July 23, 2009

    22. "I think it's pretty bizarre that Chinese companies have made some legitimate business deals, and already people are talking about USA declaring war on China."That comment is so utterly bizarre it deserves having the light of truth shone on it — even on a thread that is filled with bizarre speculations about speculators from people who should know better.Just which "people" are talking about the USA declaring war on China, BC? Tell us. Teddie Kennedy? Barack Obama? Nancy Peolosi? NPR? NYT? Come on, BC. Remember, this is Robert Rapier's blog, where facts rule. Give us names, dates, context. Or forever hang your head in well-deserved shame.

      Comment by Kinuachdrach | July 23, 2009

    23. Armchair,I concede the point that refineries are getting dinged up by the speculative over-shoot in crude prices. Crack margins have disappeared in the face of lessening demand. The refineries could (if they wanted to) raise prices and restore their margins. There is absolutely nothing to stop them from doing so.But, in the face of 10% un-employment none of the refineries are likely to do that. Who wants to raise prices "while America suffers" ? Who wants to play The Grinch That Stole Christmas ?So they are going to play the waiting game and let slackening demand work its way back up the Oil Food Chain. In the meantime they shut down gasoline capacity to support pump prices and refine higher margin diesel until the Hot Air Crude Balloon floats by.Valero is continuing to buy crude at various price points because they own several gas station chains: Diamond Shamrock, Valero, Stop and Go, etc.If you don't like "conspiratorial theories", allow me to ask you this question: "What caused the recent run-up in crude prices ? Exactly what "NORMAL market mechanism" do you attribute this to ?John

      Comment by Anonymous | July 24, 2009

    24. anon,You ask "What caused the recent run-up in crude prices? Exactly what "NORMAL market mechanism" do you attribute this to?"Since the market low in mid February, the DJIA is up almost 40%. Investors are anticipating a recovery. One symptom of an anticipated recovery is a run up in commodity prices. So. In the same time frame:Copper is up 38%Lumber up 36%Aluminum up 25%Commodity indices up by about a third.http://www.bloomberg.com/markets/commodities/cfutures.htmlSince then WTI correlates to the DJIA with a correlation coefficient of 0.67. Pretty good for financial data. And a pretty fair explanation for the lift in commodities and especially oil.Additionally, over that same time frame, the dollar has dropped against the euro. The WTI correlates to the $/euro exchange rate with a coefficient of 0.84. That's very good. That's also provided a punch.So the markets are saying oil is being lifted mainly by rising expectations and a weak dollar. "In the meantime they shut down gasoline capacity to support pump prices and refine higher margin diesel until the Hot Air Crude Balloon floats by."Sorry, but this is just plain ignorant. Gasoline inventory has gone up 6 weeks in a row and is now at the high range of its seasonal average. More gasoline was produced in each of the last three weeks than in any week since summer 2007. Diesel stocks are at a 25 year high. Propane is way above its average range. Refinery capacity utilization has gone up from 82% in early March to 86-87% now. Gasoline is down over 20 cents in the last five weeks. If you're going to accuse someone of being a criminal, you might want to at least do a bit of homework, rather than just make stuff up.Next I suppose we're going to hear that the auto industry is conspiring to raise car prices because so much production has been idled. After all, the US auto industry is much more highly concentrated than the US refinery industry. You are so wrapped in your conspiracy theories that you can't deal with evidence, you've lost your capacity for critical thought… and you can't tell the difference between sound supply management and collusion.There were 54 refiners in the US last time I checked. The largest has a market share of around 13%. It's nowhere near a monopoly, as you so glibly assume. Why do you assume this? What evidence do you have? Is it knowledge handed down to Moses?Look… I don't want to waste my time talking about aliens and conspiracies anymore. Find some evidence. Convince us that refiners are conspiring. Show us the email trail, or give us graphs with utilization and production nicely in sync across all refiners. Show us what steps they implement, supported by data, to raise prices. Tell us why they colluded to keep gas prices below $1.50 for 20 years, and why for 6 weeks they all agreed to produce more gas than Americans are buying. No one has ever presented such evidence. You won't either, and your hunches and anecdotes would be thrown out of court by any sober judge. I suggest you run over to peoplemagazine.com or Oilwatchdog.com to offer those receptive folks your dogma. You'll be happier there. Goodnight.

      Comment by armchair261 | July 24, 2009

    25. [Kinuachdrach]: That comment is so utterly bizarre it deserves having the light of truth shone on it … Just which "people" are talking about the USA declaring war on China, BC?I'm going to guess that BC is talking about the second comment on this thread, to which I had exactly the same reaction. But then I thought that comment was so bizarre that I questioned my own interpretation of it.

      Comment by PeteS | July 25, 2009

    26. "BC"s silence speaks for itself, Pete.For what little it is worth, and setting aside the utterly bizarre like "BC", many blog comments are nearly incoherent. My interpretation of the second comment was that the irony lay in the contrast between a China that recognized the need for industrial development to raise its people's living standards and an Obama who is deindustrializing the US as fast as he can — throwing good people out of work withoug any trace of the responsibility that RR shows in his next blog entry. Irony indeed!But even if "BC"s bizarre misinterpretation of that second blog comment were correct, since when does a single random blogger become "people"?And since when does one rand

      Comment by Kinuachdrach | July 25, 2009

    27. The US is obligated to defend KSA from all external threats. To stop an army even a fraction of that size,we'd have to go nuclear. Let's hope China stays in the mood to purchase these oil resources,and that the sellers don't mooch on the deals.1) Robert posts about China buying stuff2) comment about USA military power.Surely only the very dense can not find that an illogical reference? Unless it is assumed that the China somehow represent a military threat?Of course, when the mind-set unquestioned that China is the invasive enemy and that the USA must be prepared to defend its interests by any military means, any statement to the contrary will seem bizarre.But I honestly don't expect most Americans to have any real clue about how they are perceived abroad, nor to even care. So if you don't "get it", don't get bent, just don't worry about it.

      Comment by bc | July 25, 2009

    28. The large military in China only has the ability to hold a gun to its citizens' heads. China has no blue water navy. China can not project power.China like every other oil importing country depends on the US Navy with the help of or allies to keep the seal lanes open. Ties with China is Russia. Russia can get warships over to Venezuela but it was more a public relations stunt than an exercise in sea power.Periodically some world leader thinks America is soft because our kids build hot rods, listen to rock and roll, and go to the mall. The backbone of the US military is the E-5. At that point in their career they have 10 years of making decision for them self and independent thinking. Tell them the task and they get it done. Tell them to do something stupid and they will suggest a better way. After they get an education and see the world, they come home and start their civilian career. The US military is the best job training organization in the world.“But I honestly don't expect most Americans to have any real clue about how they are perceived abroad, nor to even care.”Maybe I have a friendly face but my experience is that the world loves Americans and America. While in the navy, I was looking at a map in Naples. I man who spoke English asked if he could help me. He worked for the post office and learned to speak English as an American POW. . After he helped me find what I was looking for; I stopped in small shop to buy a gift for my daughter. The owner boxed and warped the gift and refused to take my money. I had similar experiences in Spain, Greece, Portugal, and North Africa. I also worked in a small town in Spain for a year. My work place is full of folks who were born in other counties or Americans who have worked in other countries. Many of my coworkers are in the US because of repressive regimes. American is the most loved country in the world. Most of the world is very happy that the US is the most powerful country in the world.A few individuals are not. Putin comes to mind.

      Comment by Kit P | July 25, 2009

    29. Maury said, inter alia: "The US is obligated to defend KSA from all external threats. … Let's hope China stays in the mood to purchase these oil resources,and that the sellers don't mooch on the deals.""BC" strangely responded, inter alia: "… already people are talking about USA declaring war on China."Pretty clear that Maury's statement was a heartfelt hope that damn foreigners don't start another war and drag the US into it. Somehow, in "BC"s mind, that becomes aggression on the part of the US? Oh well, the rest of his response revealed a lot more about "BC" than he probably would have wanted to share.

      Comment by Kinuachdrach | July 25, 2009

    30. Oh well, the rest of his response revealed a lot more about "BC" than he probably would have wanted to share.You're really good at putting thoughts into people's heads, instead of listening to what they say. Of course, you are quick to paint me as typical "anti-American", knee-jerk stereotypes are so convenient for avoiding nuanced reality.I didn't say that the USA would start any aggression, your summary of Maurys point is basically the same as mine – the USA would respond with military force if China invades KSA. That is what Maury said, and what I said he said.What I am questioning is the assumption that China will invade anywhere, let alone KSA, and that the USA must be prepared to defend against such a threat. How did we get from investing in Africa to invading KSA? Who joins those dots?? Sure, no-one ever wants a war. But why mention that here? Why even think it in the context of the article?That "China threat" has been mooted by right-wing elements for several years, surely you are aware of it. If you are not try, googling "US China war 2009". 128 million hits to browse there…Anyway, what do you think? Does China present a military threat to the US somewhere down the line? Does canceling F-22 leave USA less defended against such a threat? If the answers are No, then there is no point of contention for you.

      Comment by bc | July 26, 2009

    31. The commentator calling himself "BC" wrote:"… already people are talking about USA declaring war on China."And then, to clarify things, he also wrote:"I didn't say that the USA would start any aggression …"You seem to be engaged in an argument with yourself, "BC" — and losing.Will the future bring wars — starving refugees, raped women, murdered children? Of course it will. Human nature has not changed since Europeans would occasionally interrupt their ceaseless fighting against each other to launch Crusades against the Muslims, exterminate the Aztecs, or colonize Africa & Asia — thereby interrupting the internal slaughter which was already going on within those various societies.Yes, there will be more wars. The world has been fortunate to have had about 60 years of relative peace because nuclear weapons in the hands of a few responsible countries made the downsides too risky for aggressors. But now Obama has stolen a page from Chamberlain's book, and wants the US to unilaterally disarm. Just how did Chamberlain's plan work out for the Europeans?Historically, the only way to avoid war has been to have had a sufficiently strong military to deter aggressors. Obviously, Europe, Canada, Australia, etc all fail that test today — and for decades have sheltered behind US strength, with the same surly ungrateful attitude of teenagers dependent on their parents. Now Obama will get the US to join you in military weakness. The lesson of history is that this is not going to end well.

      Comment by Kinuachdrach | July 26, 2009


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