Gas Prices Too High? Blame The Middleman, NOT Iran

If you think Iran is to blame for the increase in oil prices, think again.

"The global oil price has not reached its real value yet. The products derived from crude oil are sold at prices dozens of times higher than those charged by oil-producing countries," state-run Tehran radio quoted Ahmadinejad as saying.

"The developed nations are the biggest beneficiary of the added value of oil products," he said. . . .

Oil prices leapt above $72 a barrel Wednesday, settling at a record high for the third straight day.

"The products derived from crude oil cost over 10 times the price of oil sold by producing states. Developed and powerful countries benefit more from its value-added than any party," Ahmadinejad said.

Oil prices should be determined on the basis of market supply and demand, the Iranian leader said.

"Oil is the major asset of nations possessing it. Its price should not be lowered on the pretext that it will prove harmful to developing states, thus permitting the world powers to benefit the most from it," he said.

George Orwel, an analyst at the New York-based Petroleum Intelligence Weekly said he thought Ahmadinejad was playing the oil card to resist pressure over Iran's nuclear program.

"They are using the oil as a political football. Every time there's an issue with Iran, the oil market freaks out"[.]

* * *

Ahmadinejad urged oil-producing countries - within and outside [OPEC] - to establish a fund to help alleviate the pressure resulting from high oil prices on Third World nations.

Oppenheimer & Co. oil analyst Fadel Gheit said he considered it unlikely that Iran had any intention of cutting off its oil, the lifeline of its economy.

Gheit noted, however, that there was some truth in Ahmadinejad's comment on developed countries benefiting most from increased oil prices, though the statement would likely be seen as an attempt at "fanning the flames" of a red-hot oil market.

He says "some truth" because there are those who contend that "supply" would not support a higher price.

[Nevertheless] "What he's saying makes a lot of sense. Unfortunately, the source of the comment is going to send jitters in the market" [.]

"The street value (of oil) is triple what OPEC is making," Gheit added, referring to the value of a barrel of gasoline versus the value of a barrel of oil.

[I]n London, where the retail price of gasoline is about $6 a gallon, about $150 worth of gasoline can be made and sold from every $50 barrel of oil.

"That is why Exxon Mobil and all the rest make so much money" [.]

But, that margin reflects the cost of taking it to market, you say.

Assuming arguendo that that's true (which I'm sure it's not), how does the price get to $72, to begin with?

Here's an excerpt from Guambat Stew that puts it a bit differently than I did, though it's essentially the same theory.

It's all about the money AND the middleman.

Oil hit a series of new price peaks yesterday in all global markets except crude oil futures for May delivery traded on the New York Mercantile Exchange. . . .

And the market does not see the oil price falling anytime soon. Crude oil for delivery in 2013 was priced near $US70 a barrel.

Few analysts are prepared to call a top to these markets. The momentum is just too strong. . . .

But some are warning that the markets are becoming increasingly dangerous as more and more speculative money floods into commodities. There is a rising disconnection between fundamentals and price. . . .

While the fundamentals for other commodities are much stronger [than for gold], analysts are still asking whether these commodity markets have now rallied too far, too fast as well. Billions of dollars of speculative money is now flowing into commodity markets from investment funds.

. . . So, what I think we are seeing is the effects of [hedge funds] using their incredible financial muscle to push markets up until they just won't go any more, and then push them back down until they won't go any lower.

They don't need to ask about fundamentals. It is an irrelevant consideration to try to assess if whatever it is they are pushing at the moment (these guys are absolute sluts and will do any market, anywhere) is overvalued or undervalued. They ride the dance pole of momentum and survive on averages and quick entry and exit.

My sentiments, exactly.