Choked by these unnatural oil prices

Without a stronger natural gas lobby, Brent will stay where it is and only the Middle East sheiks will win.

By Jim Cramer Jun 10, 2013 9:23AM

thestreet logoImage: Gas pump (© Comstock)Here we go with the commodities and China again. You come in every morning, morning after morning, and you read about how zinc and iron ore and copper and lead are down 1.2% because of weak China data. You think to yourself, "How hard will oil be hit today? How low will it go?"

 

Of course, though, you see that Brent crude is higher. While all of these other industrial commodities fall and fall some more on whatever data may come out of China, Brent just either stays the same or goes higher.

 

That's because, as my friend Joe Terranova tweets, oil is controlled by Middle East producers, and the price just will not respond to the real markets.

 

The spare capacity is all still in the Middle East, and we all have to pay the Middle Eastern piper.

 

We all know that we've seen remarkable advances in rediscovering oil in the U.S. We are producing about 8 million barrels a day, and are importing about 7.5 million barrels now. That 8-million-barrels figure is an incredible comeback to mid-1990s levels, and an increase of about 3 millions barrels a day in a very short time, courtesy the Bakken, the Eagle Ford the Permian and some lesser fields. That's on top of a doubling in Iraq oil production, from 1.6 million to 3.2 million barrels a day.

 

Further, despite the fact that China's commodity use has declined across the board, Brent still trades at a ridiculously inflated price. The rest of the world is either helpless to do something about this, or it actually wants higher prices in order to make expensive renewables more economic.

 

Right now there is only one country on Earth that can do anything about this Middle Eastern price fixing: the U.S. If we had the political will, we could harness our competitive advantage that is natural gas and actually make an energy market in North America that is separate from OPEC. We could make oil into another commodity that's not unlike the pathetic commodities of iron, steel, copper, nickel and lead. We could actually impact price if we felt it were something worth doing. We could simply institute a policy in Washington that says it would be good value judgment to lower the price of fossil fuels, even if it does, for now, make alternative energy less economic.

 

Also see: WWDC could give undervalued Apple a boast

 

Last week I had Daniel Oh from Renewable Energy Group (REGI) on "Mad Money," and he talked about how the U.S. government has created mandates that we use renewables like biodiesel as part of our refining feedstock. I have to laugh, because this is the kind of mandate that causes fuel prices to go up in order to make farmers richer.

 

The Renewable Energy company is an outlier. It actually uses waste that would otherwise be thrown away -- inedible oils and fats. It's a real feel-good story. But we all just accept, cynically accept, the notion that the ethanol portion of the mandate is just a giveaway to farmers. No one thinks there is anything economic about it. Nobody thinks it's about competitive advantage. All it's done is jack up the price of what we eat in return for making gasoline no one likes, to use on a scale that really only benefits mostly wealthy agribusiness.

 

It's just total late-stage capitalism, wherein we all surrender our dollars to a rich minority in return for something that wrecks our engines but does nothing to stop the Middle Eastern producers from choking us and making our economies stagnant.

 

I used to think this would change when Washington recognized the U.S. had enough natural gas to switch to a more nat-gas-based system and defang OPEC. It just seemed so natural, so right, so positive for jobs and domestic security. I now know otherwise. Until the nat gas producers spend hundreds of millions of dollars to get their people elected, we're going nowhere. That's what has to happen. I just wish they were cynical enough or, maybe less cheap, so they could make it happen just like the farmers did. Without the lobby money, though, Brent will stay where it is and only the Middle East sheiks will win.

 

Cramer

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.

 

 

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209Comments
Jun 10, 2013 11:06AM
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Tog is right about Bio fuels.  Ethanol for example takes 250 L of water to make 1 L of ethanol.  Not to mention when added to gasoline it is a less efficient fuel.  In fact it is an overall net energy loser, that is to say it takes more energy to produce ethanol then you get from using it.  How many acres of farm land are being used up making this crap?  How high has corn (and all things that require corn as a consequence) been pushed up because of this artificial demand ?
Jun 10, 2013 11:19AM
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There is a lot of excuses for prices, but no reasons. The price stays artificially high to keep up the profit from exporting. This country is rapidly becoming one of the top oil producers, and the potential of being self sufficient is a fact, more than a wishful thought. However with their being much more profit in selling it outside the country, we are limited to availability of what can be used by us. It's not conjecture that we export way more than we should and that keeps the price up, and makes us rely on foreign oil. The same will be happening with Natural Gas. A huge supply, and the price will escalate, due to foreign sells. One can blame whoever they choose for this, but bottom line is, this country has taken greed to a whole new level.
Jun 10, 2013 1:00PM
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Here is how I would have written the article:

Why are gas prices remaining so high?

Greed, filthy, unbridled greed and all the ugly fat that goes with it.

End of article.

Jun 10, 2013 1:13PM
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Govt sucks, and diverting a food source inefficiently to a fuel use is just ludicrous.
Jun 10, 2013 11:22AM
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oil stays high because oil is controlled by ALL the oil producers.  NONE of them have reason to see prices drop.  they ALL have reasons to push the price higher and higher.  when prices drop, it's only briefly until new record averages or record peaks are reached. 
Jun 10, 2013 10:34AM
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Jimmy, this might be the dumbest Article you have written. Fact is, just as there is a Global Collusion by the FEDS, the same can be stated for the Oil Industry. Canada is where we import the most Crude Oil(Sour) from, not the Middle East(Brent,etc). Supply of Crude Oil sweet or sour isn't the problem, futures contracts are and the way they are being manipulated. The moment future traders are forced to take actual delivery, Crude Prices will tumble. The moment Refineries stop playing games with production, Crude Prices will tumble. Technology is to the point where most Refineries can process both. The east coast has less ability to do so than the Gulf Cost Region. All the big Players benefit from soaring Crude Prices, otherwise the Fracking Boom would be a Bust. Brent and other crude will stay where it is along as folks like you give out bad information.
Jun 10, 2013 1:08PM
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Its not OPEC, its not the middle east. Its American greed, and Wall Street, pure and simple.
Jun 10, 2013 1:05PM
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make an energy market in North America that is separate from OPEC.-- Oh, they want us to believe that they are in a way on that path, when they say broad statements like, we can produce our own oil and gas here. But they forget to say that we
are now exporting more oil and gas then ever before. It is not being kept here for our use.
Jun 10, 2013 1:14PM
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Simple answer here folks. The Wolf guarding the hen house holds all the playing cards.  I wonder what would happen if EVERY AMERICAN did not buy gasoline for two weeks? The boycott would send the speculators to the NUT HOUSE. 
Jun 10, 2013 12:27PM
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Why are we still subsidizing oil and drilling companies? So, they take our tax payer dollars and give it to companies that are in SD and they lease the land and create millionaires. Yet, you complain about tax dollars going to SS? Really people...
Jun 10, 2013 1:26PM
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Even through all this explanation, I simply remember the day about four years ago that gas was less than $2.00 per gallon. When everyone woke up the next day, it was $4.00 per gallon overnight.

It has not let up since, maybe .50 cents lower at times just to get us used to the new norm.

Jun 10, 2013 10:13AM
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We are just being held hostage, by the Oil Barons(no matter where they are at) and the Governments that are taxing the hell out of any sales...

This Administration has allowed or auctioned off more permits, then just about any before it..

It's a big business..

New finds as stated above and more productive ways of retrieving the oil that is still in the ground, certainly isn't bringing prices down; So we have to assume there is manipulation at many levels.

 

The mandates should be cancelled temporarily and concentration on burning fuel cleaner otherways.

Coupled along with cleaner coal applications, to boost power generation on our most abundant commodity...

And persue other alternative energy for homes and vechicles, and not giving up or sh!tcanning the progress we have made with solar,wind and EVs..Maybe we can have enough grit and guts to finish some projects finally, that will leave a legacy to our children and grandchildren....

Good Article Jim, puts some proof and truths into the "dirty little oil business."

Jun 10, 2013 11:46AM
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Dave can't or don't disagree with some of the rest of your comment...But we are doing nothing about it.

But instead stymie any growth or more fruitful usage of what we have available.

The State of Nebraska and enviromentalists....Hold Up Keystone pipeline..

Nobody wants a "new refinery" in their backyard...

EPA cracks down on coal usage, with maybe un-meetable demands.?

Up in arms over "fracking" and other ways to retrieve more Oil and nGas.

Other pipelines and refineries take years to develop,permit and build..About 10 ??

In many ways we are our own "worst enemy."

Jun 10, 2013 1:17PM
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An ignored addn. problem is the Fed keeps printing money and devaluating the dollar.   oil becomes more costly as it is priced in dollars which pushes up prices.  There is at least a 30% increase in cost because of this policy.
Jun 10, 2013 12:17PM
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oil is high because capitalism dictates that the middle eastern owners enrich themselves at the expense of those needing their oil
Jun 10, 2013 11:22AM
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There is no collusion or guberment fraud or abuse anywhere at any time.  All you conspiracy theorist are so very wrong.  Mein Kompf would never allow such behavior to exist. Let us hear more about R this or D that.  The biggest crime of all has yet to be exposed.  All this little spying, using the Irs to slow down freedom of speech, and abandoning Americans under fire is of such little importance.  These are but tidbits of plaster falling from the Wall of Arrogance created and maintained by our present one party system that serves all Guberment while the citizens are treated like subjects..  The real fraud is the New World Order where our electerds have entered an illegal, not known or represented to or by the citizens,  a pact to appease other world leaders, bankers, despots, and to sacrifice the American working class.  This has been going on since Reagan.  The Bush's, Clinton, and Obama have continually been selling the American worker out for their own and their associates gain for some time.  So tired of being lied to and misled and then having these clowns here on MSN writing while being so ill informed of present economic imperatives. A gazillion little Minions all busy like little mice.
Jun 10, 2013 12:08PM
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One of the reasons for higher prices, seems the Retailers( whom we give a free ride) have realized over the last 10-15 years of very easy ways to manipulate pump prices and get away with it...

There is no blame to put on present and or past Administrations; Because we are the ones going along with what the retailers are doing...

I haven't boycotted a Station....Have you ?

I haven't written my Rep,Sen, or President...Have you ?

I haven't contacted my Govenor's office to get State relief....Have you ??

In past years Presidents or Governors have frozen some prices temporarily or offered tax relief..

When was the last time we have seen that?? Except maybe Obama's temporary SS relief to go towards rising energy purchases...Didn't help any, if you were already retired and not working.

Jun 10, 2013 12:41PM
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Trying to stay in the green but these crooks have been selling on any and every rally attempted...At 1230 hrs they even called to accelerate the selling....Almost 3 and a half hours to go still so remain cautious....Cheating scumbags never give up...More later.
Jun 10, 2013 12:20PM
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Where does our oil go? IIt goes into the world supply, by which raising world supply lowers world cost. However, it only brings down gas prices by a couple cents. Still, it does create new jobs and American prosperity (I'm sure ND is thrilled to have the oil drilling)--- That is what I thought, so it helps the average person with a couple of cents, but we are creating 2,000 millionaires a year in SD and we all know they are spending and investing  that money back into the economy... right?
Jun 10, 2013 1:29PM
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More supply, less demand, yet prices stay high and still go up? Something is horribly wrong with this picture people!
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