With NYMEX oil floating in the high US$50s and low US$60s right before the election day, forecasts range from “going down more” to “going way up after,” but no one seems to really know what is going on there. On the G.U.N. gold versus barrel of goods chart from today, we can see how far NYMEX fell versus all the commodities in just the past 60 days. If you watch the graph, you’ll see that NYMEX crude oil stuck with the barrel of goods average fairly well from the start of the chart, May 9, 2006, until September 6, 2006. At that point (about 60 days ago), it really fell sharply.

OPEC President Edmund Daukoru said on Sunday that “all the group’s members will fully implement their production cuts, while market conditions may force the Organization of the Petroleum Exporting Countries to cut output further next month.”¹. A reduction in OPEN output would realistically push prices up (lower supply, higher price) unless there is either a cut in demand (unlikely) or an equal rise in supply from other resources.

With the recent drop in Natural Gas prices, some drillers and miners in the Texas shale region are cutting output. “Chesapeake says it will shut in 6 percent of its production, or EnCana Oil & Gas of Canada says it will drop four of its Barnett Shale rigs.”², says an article at the DFW Star-Telegram. As NYMEX prices went up, experimental wells and other new energy sources in the US increased. Now as Natural Gas and Oil prices fall, more companies are considering pulling back in some regions, which is changing news from just a week ago.

In E85 news, Tennessee approved a $4 million budgetary increase to boost production of E85 fuels and other alternative fuels.³From a free market perspective, State-initiatives are usually more cronyism and paternalism than an actual response to demand.

Discuss this article at the oil report forum.

PORTLAND, OR

by Mike Bryson
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The oil industry and market has been destroyed by State regulations, control, war-mongering and subsidies. The more the State has become involved in energy regulation, the higher prices have gone and the lower supplies have dropped. Often times we see those in the State or aligned with the State seeing a crisis looming ahead, but we also have seen the State try to stop a crisis with price caps, which has caused a bigger crisis. The gas crisis during the reign of Nixon was shown to be false, just as every crisis will likely be in the future. The free market of prices tagged to real supply and demand is all we need to overcome a crisis; when real supplies dwindle and real demand goes up, other energy sources will be found. It happened with Kerosene and Coal turning into Gasoline and Nuclear energy; if it wasn’t for the State limiting the supply of Gasoline and Nuclear generation, we’d have much lower prices and much higher supplies of both.

It seems like everyone in Macomb county, MI want more government regulations and subsidies in order to try to prevent a crisis.¹ This is in a state that has been destroyed by government control of nearly all their markets including the labor market. Instead of pointing the finger of blame at the previous regulations and subsidies, the sheeple of that region just want more nannyism and care rather than opening their markets to true competition. While wages might drop, jobs will grow and the new lower prices means lower wages won’t be a problem for those that now have jobs. Don’t wean people off of government care; end government care and let people find out that everyone can produce something for someone else.

New York is possibly leading the boom in corn-based ethanol as the governor announces a fourth ethanol production facility.² While this nearly US$100 million facility will be built with mostly private funds from farmers, agribusiness and individual investors, it will open to receiving millions in state aid and tax credits. Again the State is there to give preferential treatment to the select few at the cost of millions of consumers and taxpayers. We also have to see that the heavy sugar regulations in the U.S. have removed one of the best alcohol-fuel products from the market: sugar-based fuel which is more efficient and cheaper to produce than corn-based ethanol.

In a debate between a few candidates for the Governor of Minnesota, the incumbent said he wants to go after oil companies’ contracts that prevent more gas stations from installing E85 ethanol pumps.³ Many oil companies have contracts that prevent gas stations from selling fuel that the company itself does not market. While it may sound like a good idea to go after these contracts, it could have huge effects on the viability of the major gas brands itself. What politicians should be going after is laws that prevent gas stations from selling what they want (unless a contract prevents them). In many markets throughout the U.S., State and local laws limit what business owners can do.

Another vehicle is announced that will support E85 / Flex Fuel fuel, this time it is the 2006 Chevrolet Avalache SUV.⁴ The Avalache has a 5.3 liter V8 engine pushing over 300 horsepower.

While we see huge gas prices partially blamed on no new refineries opened in decades, that isn’t the case with the heavily-subsidized E85 ethanol blends. In Ohio another ethanol production plant is popping up, with hopes that the additional supply (and competition of refineries in various states) pushing the price of ethanol down further.⁵ If subsidization could be removed, even more companies would enter the market; competition is what drives prices down, subisization keeps competition from entering a market.

We see how subsidization and regulation of ethanol leads to less competitors and huge profits (which happen mostly in a regulated market of State-made monopolization) in ADM’s recent report that their ethanol market has jumped nearly 600%.⁶ ADM is one of the heaviest subsidy-lobbying groups and one that has a strangehold on many corn markets.

Wal*Mart might be one of the biggest pushes for more ethanol availability as it announced it wants to provide the fuel at its gas stations.⁷ Currently only 800 out of 160,000 gas stations provide E85, with Wal*mart able to add another 50% to the small number. The more, the merrier, but it seems that local and state regulations against gas competition within the same station might be one of the factors keeping the alternative fuel down. The added cost of subsidization in reducing competition is also a problem.

A small group of young 20-somethings took a roadtrip across the U.S. using only E85.⁸ They were able to find the most E85 in the corn-belt where prices ranged from US$2 to US$2.40 per gallon. The hardest part of the trip was in the Rockies where they had to rely on 22 gallons of ethanol stored in red tanks (not a safe procedure). The 10-day journey started in D.C. and ended in Santa Monica, CA.

A hilarious article that reiterates why the State is the great evil in energy distribution is in the Green-Bay Press-Gazette: Gov. Doyle announced that the state of Wisconsin’s minimum mark-up law doesn’t cover ethanol, which can sell for up to US$1 less than gasoline since stations are allowed to compete freely.⁹ Minimum mark-up law? What does that mean, in a market with heavy regulations and zoning restrictions? It means higher prices, of course.

Discuss this article at the oil report forum.

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Mike Bryson is the news editor of the Global Unanimocracy Network. He lives in the Portland, OR region where he works as an IT business developer and point of sale consultant. E-mail Mike with news links or comments on this report.