Jacob's Soap Box

02 October, 2009

Last week we saw one of the most frightening exposition of the end of our individual (respective) national sovereignties as we have been accustom to know it. Last week was the watershed in what our politicians often refer to as “the journey” towards global governance. Call me “scare monger” or “conspiracy theorist” if you wish but I am here neither to scare you nor to advocate a conspiracy theory, I merely seek to highlight certain facts that are unfolding right in front of our eyes and ears and propose their significance, as I see it.

But first let me explain, global governance is not the same as global government. Global government refers to the establishment of one world-wide government, presumably under the auspices of the United Nations (or a similar organisation yet to be established), that would govern the whole world as if it was one single country. Although there are some who aspire to it, world government is not going to happen, not without a lot of bloodshed anyway.

On the other hand global governance is the action of governing under common global set of rules. Instead of blue helmets “policemen” and Black Hawk helicopters with blue UN emblem enforcing the rules of a global tyrant, under global governance, our own, friendly (or not), policemen and women will continue enforce the laws of the land, except that increasingly the laws of the land will be the laws of the globe and will come from a global governance bodies such as the UN and its agencies, proposed and drafted by faceless UN bureaucrats and rubberstamped largely by Non-Aligned Movement’s countries who hold the majority voting power in the UN.

Those of us who live under democracy will still have democracy of sort, we shall continue to vote for our respective national democratic institutions except that those institutions will be subservient to the global governance body. In other words our national governments of the future, in time, will have as much powers as the current federal powers of your local municipal council, the powers given to it by Agenda 21, more about Agenda 21 later.

Within a week, the week ended on 28September, 2009, we saw the United Nations Framework Convention On Climate Change in New-York (Sept 22), the United Nations Security Council Meeting (25 September,2009, chaired by president Obama, the general debate of the opening of the 64^th session of the General Assembly of the United Nation in New-York (on 23-28 September,2009) and the Pittsburgh G20 Partnership Meeting (on 24-28 September, 2009). Whilst none of these events, in themselves, are anything new, apart from a lot of symbolism, it was the first time that leaders of the western democracies not only spoke in such unison on all raised issues BUT the all push the “Global” part above the interest of their own countries.

Our so-called leaders went to New-York and Pittsburgh to represent us, one would assume, but instead they ended up pushing their own global governance agenda through climate change, G20 or straight out UN speak, here are some example:

Barack Obama in a speech to General Assembly, highlights provided:

We have sought — in word and deed — a new era of engagement with the world. And now is the time for all of us to take our share of responsibility for a global response to global challenges.

He later said:

Today, let me put forward four pillars that I believe are fundamental to the future that we want for our children: non-proliferation and disarmament; the promotion of peace and security; the preservation of our planet; and a global economy that advances opportunity for all people.

Go and tell the brainless idiot Marxists anti-globalisation protestors in Pittsburgh that their Messiah and their activists professors are the champion of globalisation, but hey why lets some pesky fact spoil a good anti capitalists demonstration, beside, who said that riots need have a good reason?

And our illustrious Prime Minister Kevin Rudd aka Kevin747 was at his besting terms of laying grounds for his next job, he said to the very same forum:

And it is on the current challenges facing the global order that I wish to speak to this 64th General Assembly today – the global financial crisis, the unfinished business of the Doha Round, the unfolding crisis of the planet itself, the unresolved question of nuclear weapons 20 years after the end of the Cold War – and of the future of global governance itself.

Dear Kevin, he does not mince his words, does he? He continued:

And a wake-up call that our system of global governance today is in radical need of reform.

You see, to Mr. Rudd, global governance is already in here, all it needs is a radical reform, is that the same person who had told the Australian voters the he, Kevin 07, has plans for Australia? I do not recall any mention of making Australia governed from New-York.

Indeed, in certain aspect global governance is already with us, it has been here for some thirty years, just look at all conventions, declarations, charters, protocol and other euphemisms for RULES, coming down from the UN and ratified by our respective governments under our noses.

Whilst you and I been busy labouring to put roofs over our respective families, and food on our tables, the people who we elected and TRUSTED to protect our interests we busy scheming amongst themselves to bring us a global governance by stealth.

Take a look at some examples, The Lima Declaration of 1975, states, inter alia:

[Solemnly declare] their resolve to ensure the speedy and effective implementation of the principles of industrialisation laid down in the International Development Strategy for the 197Os which is being adapted to the Programme of Action on the Establishment of a New International Economic Order; [para 25]

And

That countries, particularly developed countries, should undertake an objective and critical examination of their present policies and make appropriate changes in such policies so as to facilitate the expansion and diversification of imports from developing countries and thereby make possible international economic relations on a rational, just and equitable basis; [para 27]

In other words, we “particularly the developed countries”, must hand our production to under-developed countries. Why? Because we, the developed country are evil and must pay for our sins – nothing about the billions of aid money that was squandered by corrupt leaders, nothing, no one talks about it because they are VICTIMS.

Then we have The Rio Declaration which is part of Agenda 21, documents that, irrespective of our sovereign laws, mandates local government and NON-GOVERNMENTAL organisations (NGO’s) an official status not only in relation to environmental legislation but also, the use of the environment as an excuse for all left wing doctrines – indeed a masterpiece of left wing activism, here are some examples (from the Rio declaration):

Principle 20

Women have a vital role in environmental management and development. Their full participation is therefore essential to achieve sustainable development.

Principle 21

The creativity, ideals and courage of the youth of the world should be mobilized to forge a global partnership in order to achieve sustainable development and ensure a better future for all.

Principle 22

Indigenous people and their communities and other local communities have a vital role in environmental management and development because of their knowledge and traditional practices. States should recognize and duly support their identity, culture and interests and enable their effective participation in the achievement of sustainable development.

Principle 23

The environment and natural resources of people under oppression, domination and occupation shall be protected.

Principle 24

Warfare is inherently destructive of sustainable development. States shall therefore respect international law providing protection for the environment in times of armed conflict and cooperate in its further development, as necessary.

Principle 25

Peace, development and environmental protection are interdependent and indivisible.

[Highlights provided]

And we had thought that looking after the environment means to ensure clean air, clean water and rain forests. Oh no! Agenda 21 makes it clear that just about any left wing activist can become a police officer.

When your local council require an environmental impact study before it approve your car port, say Agenda 21, when you council declare you town Nuclear Free Zone, say Agenda 21, when your council put up signes calling for the protection of the Tasmanian rain forest, say Agenda 21 – in fact when you council involves itself with issues outside its boundaries chances are that it is Agenda 21.

Charity organisations such as Oxfam or World Vision, supposedly established in order to assist the needy in poor countries (but not in their own for some reason) are getting vocally involved in issues such as global warming or join in condemning Israel’s “disproportionate” use of force, say Agenda 21 – You see my friends, the misery industry, just as the watermelon environmentalism, green on the outside and red on the inside.

The way it works is that the UN organises a convention on the issue, the UN bureaucrats, most come from under-developed countries, who prepare the final outcome and name it as a convention, protocol, declaration, agenda or whatever, it automatically passed by two third majority of the so-called non-aligned bloc with 113 votes of which about Half (56) are also members of the Organisation Of The Islamic Conference (IOC) and now you have it a “UN resolution” that your government rash to ratify as a good global citizen – It is for your own good, even the UN said so ….. hmmm hmmm hmmm.

I am sick and tired hearing politicians using “other countries” excuse as if the monopoly on wisdom lay in other countries – I like it here as it is, thank you very much but when I see politicians from all over the world using the same speak about global governance I get frightened.

whose side are they on?

© Copyright Jacob Klamer, 2009

14 march, 2009

It was recently revealed that our Governor-General, our Queen’s representatives down here, Quentin Bryce, is about to take a controversial 18 days 9 African counties trip, apparently canvassing for Australia seat on the United Nation Security Council (UNSC)

The trip is controversial because, contrary to conventions, our G-G agreed to participate in partisan politics, but this is to be expected when a socialist megalomaniac PM like Kevin 747 appoints a fellow Queenslander, socialist activist republican to represent the queen.

Leaving the constitutional question of the trip aside, it seems that our illustrious PM’s sudden urge to for substantial engagement with Africa has nothing to do with Kumbaya but to pander to the Africans, canvassing their support for Australia’s (non-permanent) seat on the UN Security Council in the 2012 General Assembly vote for 2013/14 tenure.

Whilst there is nothing wrong or unusual about Australia seeking a UNSC seat per se, Australian interests, or world peace, does not appear to be the motive of Kevin747, not in my opinion anyhow.

As an avid Kev watcher, I cannot escape the feeling that this is all done to satisfy Kevin’s control freakishness, megalomaniac tendencies and a further excuses to dance on world stages. I would not be surprised if behind it all is the background of Kev eventual assault on the job of Secretary General when Kev is “elder statesman” former PM and Ban Ki Moon had enough.

My main concern is that, if I am judging the situation correctly, Australia’s interests are about to be trampled on for a personal agenda. Oh, don’t tell me, Kevin does not do it for himself, it is all for Australia. Bull dust!

The UN is the most corrupt organisation in the world, there no revere can come to Australia from associating with such shady body (in it current structure) that is anything but what its founders intended.

How does it works?

The Security Council

The Security Council (UNSC) is the only UN body with “teeth”; unlike the General Assembly, it has the powers to enforce its resolutions (if it wishes) by mastering peace keeping forces, apply sanctions, embargoes or even engage in a military campaign as it did in the Korea War and the Gulf War I.

The UNSC also vets and recommend admission of new member states to the UN for approval (or not) by the General Assembly (GA).

It also select the new Secretary General for member states approval by a vote in the Assembly (or not).

The UNSC is the “executive branch” of the UN, similar to a Board Of Directors (except the veto powers) whilst the general Assembly is akin to the shareholders of a company

The UNSC comprises of fifteen members, fives permanent, perms in UN jargon and ten rotating members, non-perms.

The Five perms are United State, Untied Kingdom, France, Russia and China, each has a veto power on any UNSC resolution.

Every year five of the ten non-perms are voted for a two years tenure, similar to the half senate elections. Their composition is based on the following key:

Africa: 3; Latin America & The Caribbeans: 2; Eastern Europe: 1; Asia: 2; Western Europe & Others: 2.

In addition, there must always be at least one Arab member that comes off either from the Asian or the African allocation.

The “others” in the Western Europe group include Canada, Australia, New Zealand and Israel.

Israel is the 57^th state member of the UN, in order of joining. Israel Was accepted as a UN member state on 11 May, 1949. It preceded countries such as Austria, Finland, Italy, Portugal Spain and the vast majority of Africa (the exception are Egypt, Ethiopia and South Africa).

Because of Arab opposition, Israel was not accepted as part of the Asian bloc, it became an “untouchable” bloc of itself, a bloc that is not entitled to a seat on the security council.

In 2000 Israel was accepted “temporarily” to the Western Europe & Others bloc ON THE CONDITION that it would not seek a seat on security council, still untouchable.

There you have it, whilst the Arab countries always guaranteed a seat on the Security Council, Israel is “guaranteed” never to have one. What about cultural diversity, social inclusion and other PC spins? Heh?

The United State has requested Israel not to “rock the boat” on the issue of seat on the UNSC in exchange for a US “diplomatic umbrella”. This is the real source for the USA support of Israel in the UN, rather than “strong Jewish lobby” although there is little doubt that USA support for Israel needs no special agreements.

The purpose of these facts are not to present Israel as a victim, just to demonstrate one of many hypocrisies that rule the UN.

To gain a seat on the Security Council, Australia must get the two third of the votes in the General Assembly (GA) or 128 vote out of total 192 members. The fact that Finland and Luxemburg have also put their candidacy forward makes it a three horses race.

The charade has commenced, now let us turn to the working of GA.

The General Assembly

The General Assembly (GA) is the forum of All 192 members states of the UN, practically all the countries in world, except Taiwan and the Vatican.

The voting in the GA is one state one vote, thus the vote of the USA or Russia is equal to the votes of, say, Maldives or Andorra.

Not so when it comes to funding the UN. The UN is funded by its members according to their relative capacity to pay (measure by the respective Gross National Income). The top six of the contributors to the UN provide about 64% of its budget (2006 figures) whilst the last third of members provide less then one thousandth of it (0.1%).

Russia is the only UNSC perm that does not make the first fifteen contributors list, nor would you find any OPEC member in that list.

The GA meet yearly from September to December but may be called for extraordinary seatings. About two third of members, also known as known as G77 (although they are nowadays about 130 in number) or the Non-Aligned Movement (NAM) practically control the stage on the assembly when they vote en bloc which is most times.

NAM was founded during the Cold War days by India’s Nehru and Yugoslavia’s Tito as supposedly a bloc of counties that are not aligned with the West or with the USSR. These countries were also known as the third world, developing countries etc. Today, counting observers status too, the bloc includes all the countries in Africa, all the countries of Asia (except Japan, South Korea, Turkey and Israel) and all the countries of Latin America and the Caribbeans (except Argentina).

Like all UN euphemisms, the tern non-aligned is nothing but a bad joke. The phrase suppose to denote a forging policy independent from the USA and Russia; Really? How foreign policy independent is NATO member such as non-aligned Poland? The same question can be asked of former USSR states such as Uzbekistan or Kyrgyzstan who enjoy the Russian bear hug?

Be that as it may, you now realise that if you want a resolution passed in the UN you have Buckley’s chance of getting it unless you have the 113 votes of Non-Aligned, or about 130 votes if you include “observers” (and hangers on) which is just over two third of the UN vote that will guarantee control on the assembly.

But wait, it is getting even better, 54 members of the non-aligned bloc also belong to the 57 states strong Organisation of Islamic Conference (OIC) meaning that just about half of the so-called non-aligned countries are the Muslim countries; put it in other words, as there is no veto powers in the GA, the UN General Assembly is in fact controlled by the Muslim world!!!

Now, you don’t really need to be a rocket scientists to see the reasons for the constant obsession of the UN and its institutions with constant condemnations of Israel. Do you really believe that had Mamma Teresa headed the Israeli government the relations of Israel with the UN would have been any better? if you do I have some excellent investment opportunity for you in one of Bernard Madoff’s secured investment funs.

Although the resolutions of the GA are not binding, they are often used as excuses to limit our liberties for the greater good of the planet … or such like similar crap. How many such UN resolutions have been used in such a manner? Let’s look at some examples:

On 6 December, 1973 (in a middle of oil embargo against the West by OPEC, mind you) the UN passed Resolution 307, the LIMA DECLARATION ON INDUSTRIAL DEVELOPMENT AND CO-OPERATION, also known as the Lima Declaration in short, that mandated the largest ever transfer of wealth from of the developed word to the Third World. e.g:

25. [The signatories declares that They] resolve to ensure the speedy and effective implementation of the principles of industrialisation laid down in the International Development Strategy for the 197Os which is being adapted to the Programme of Action on the Establishment of a New International Economic Order;

27. That countries, particularly developed countries, should undertake an objective and critical examination of their present policies and make appropriate changes in such policies so as to facilitate the expansion and diversification of imports from developing countries and thereby make possible international economic relations on a rational, just and equitable basis;

[Emphasis and highlights provided]

(Hey, who needs conspiracy theories?)

Let us look at another issue, the Environment. The REPORT OF THE UNITED NATIONS CONFERENCE ON ENVIRONMENT AND DEVELOPMENT, also known as the Rio Declaration, The forerunner to the Kyoto Protocol. Again, the UN General Kumbaya agree that we must save the planet but … wait … not if it hurts some poor none-aligned.

Principle 6 of the declaration makes sure that saving the planet is a NIMBY (Not In My back yard) affair.

The special situation and needs of developing countries, particularly the least developed and those most environmentally vulnerable, shall be given special priority. International actions in the field of environment and development should also address the interests and needs of all countries.

The futility of global warming aside, the same principle is used by China and India to excuse themselves from taking action on global warming, not because it is a the greatest hoax ever perpetrated on human kind but because the proportionality doctrine that says that it is now their “turn” to emit carbon dioxide.

Perhaps we can also agree that all those nations who missed out on slavery be allowed to introduce it provided it is proportionate to previous slavery, how about it? It is their turn!

And so the Third Word gets away exempting itself from a whole host of UN resolutions due to cultural sensitivities, We, in the west, are prevented from discipline our kids by the UN Convention On The Right Of The Child, whilst third world countries may continue to practice child slavery and deny education to Muslim girls having regard to economic, social and cultural rights as permitted by Article 4 (and elsewhere) in the convention.

Women may be bitten and honour-killed in conformity with cultural sensitivities simply because the Organisation of Islamic Conference control the Third World voting bloc in the General Assembly, the same applies to other human rights that are too culturally sensitive to be adopted in Muslim countries.

The whole travesty they call human rights, in the context of the UN, is an issue by itself, but you can do no more than shaking your head in disbelief observing countries such as Libya, Sudan, Iran and other with abhorrent human rights records leading the Untied Nations Human Rights Council (UNHRC) reprimanding western democracies on the subject.

But don’t think that if you don’t like what you see you have a right to criticise it, you don’t! Take a look at the UN Resolution 62/154 Combating Defamation Of Religions, which has been dubbed as Anti-Islamophobia Resolution. It calls for countries to take measure to stop criticism of Islam.

But I guess that Muslim have a cultural sensitivity that allow them to call Jews and Christians apes and swine.

The UN has ceased to fulfilled its intended functions sometimes in the 1960’s. It has become a tools to drag humanity back to the seven century, limit our sovereignty and rid us of our liberties.

Too often we see narrow and radical self interests within our countries use the UN to subterfuge the democratic process and liberties as if the UN is some sort of a supreme benevolent umpire (*gulp*).

Next time that you see a UN resolution, just before you get all wet an worm on the inside, remember Who the hell is actually running this charade we call the United Nation.

26 November, 2008.

Those of us who served time in the corporate sphere know only too well how the financial skeletons are hidden from shareholders and the market until they can be buried in an avalanche of unrelated bad news or can be “explained” by “circumstance beyond management control”.

For example, if a company had overextended credit to a customer that later went bad, such bad debt will stay on the books as normal trading debt until something else happens, something that will enable a quite write-off, no ‘irritating’ questions asked.

The current economic crisis is a godsend opportunity to many management teams allowing them to clean out their closets and they do. Take a look at how many skeletons that are bought out are bone dry, they have been dead for years but now is the time to bring them out and blame the death of the respective bodies on the current global financial crisis as if it had just happened … Thank God there is a global economic crises.

In corporate politics, as in political politics there are two simple rules, the first is that your success are in facts your boss’s successes and your bosses stuff-ups are yours. The second rule is that no matter how certain the anticipated benefits are, you ONLY take actions that you can “EXPLAIN” should thing turn sour. Global economic crisis is an ideal excuse, it is big enough to bury just about anything in it. … Thanks God there is a global economic crises.

* * * * *

No difference in politics. Our illustrious PM Kevin707 who is just back from yet another globe trotting exercise embraced the global economic crisis with both hands with the normal clichés such as “global challenges require global solutions”, “acting now will cost less acting later” (hey didn’t we heard this argument in relation to global warming?) and of course the continuing mantra about “free” trade, but that is another issue.

In the midst of all this, our Government is rushing through legislation, that although part of their election campaign, is strengthening the unions and have the potential to increase unemployment.

Until now the government was reluctant to introduce that legislation, to the great infuriation of the unions, because of the risk that it may increase unemployment and as we all know Kevin707 is a fiscal conservative, at least a self professed one (didn’t I hear this term elsewhere? Yes I did!) .

So you can now see, when we all busy watching and reading about government assistance, guarantees, bailouts, stimulus, insolvent banks, crushing car makers etc, Kevin707 slip this stunt on us and sure enough, I bet my bottom dollar that the resultant unemployment will be blamed on the economic crisis. Thank God there is a global economic crises.

Similarly, our government is pushing ahead with their Emission Trading Scheme (ETS) which apart from being a total deception, going it alone is and economic suicide bomb. What would happen to the little manufacture base left here if they have to pay such heavy fine for the privilege of having factories here? You got it! The will offshore themselves more people out work but …. Thank God there is a global economic crises.

And that is not all. The socialist have some more “progressive” policies such as (government) paid maternity and paternity leave. I bet you that we are going to get an influx of “family reunions” from the Middle East shortly, but … Thank God there is a global economic crises.

* * * * *

How is that relevant to my friends outside Australia? As I showed in my previous blog The Hollow Man there is very little differences in socialist policies no matter where you are. It appears that with the election of Barack Obama in the USA he is not only the first African-American president but also the first Labour president of the USA. from January 20^th 2009 we will have wall to wall Labor governments in USA, UK and Europe as well as Australia, all following similar policies which are to economic depression what gasoline is to bushfire, but … Thank God there is a global economic crises.

The rhetoric is virtually identical, global warming (climate change), fiscal conservatives, free trade, stimulus, Keynesian economics (of government intervention) etc and are not unique to Australia. What also is not unique to Australia is when such socialist policies will do what socialist policies normally do our politicians around the glob will be quick to point out to the global economic crisis with or without some more summits, but … Thank God there is a global economic crises.

Amazingly all our Labour governments, since the 1970’s all suffered from global economic downturn that led a government of a population equal to that of New York City, to a debt of $90 billion in 1996. It took our conservative government 11½ years to dig us out of our of hard labour sentence, pay our debts and build some nice cushion surpluses, the Asian financial meltdown of 1997 notwithstanding, but a mere year in our current hard labour sentence we already hear something we had not heard for a decade and that is the “D” word, DEFICIT but … Thank God there is a global economic crises.

28 July, 2008

In  Part I I made some comparison between crude oil and tomatoes for the purpose of illustration. Crude oil, (and indeed petroleum products) and tomatoes are commodities, commodity is an undistinguished article of trade. This to say that you cannot distinguish, nor do you care to, assign value any characteristics which is not  generic to such article. For example you would assign monetary value to octan rating of your petrol (gas) but none to the refinery that produced it or the source of the crude that was used as stockfeed.

The same goes for tomatoes. You would assign value to it’s species, size, and degree of ripening but would not care less where it was grown or who grew it. The “brandlesness” of commodities means that the competition between the sellers (or buyers) is on price only, the nightmare of every marketeer.

In fact millions or even billions are spent on branding commodities by heavy advertising, the idea is to get you to believe that one brand of baked beans is better then the other thus be willing to pay more those beans that are labelled “Heinz” then for the generic brand of your supermarket, although both may well were canned by the same cannery and the only different between the two is the label on the can.

However, there are some fundamental differences between oil and tomatoes and that that is that tomatoes are product that it’s availability is established after it has been produced whilst oil has its value whilst it is still in ground. Further, tomatoes are perishable, meaning that they have a relatively short life after production, whilst oil does not change its qualities with time.

Suppose you bought tomatoes futures options from me for next season, I now MUST produced those tomatoes for you irrespective of market price to be ready to deliver to you should you exercise your option. But, and it is a big “but” if you will choose not to take delivery of my tomatoes because you will be able to get them cheaper elsewhere, I would have to cold store them whilst looking for buyers whilst my tomatoes still have value, otherwise I would lose all that I had spent on producing them.

On the other hand if the crude oil futures option is not exercised, it had costed nothing, such oil simply stays in the ground, the oil producer does not even has to pay for storage, his “next season” oil is waiting. He can offer it spot or just ‘sit on it” for a while.

A short Lesson In Economics

Economics is the art of explaining why the last (economic) prediction did not materialise.

(not me)

Firstly, although some would like to pretend otherwise, economics is not a science. Science is about observation and proving or disproving hypotheses, we don’t do that in economics. In economics we observe, theorise, hypothesise  and hop for the best. Economist cannot carry out experiments that prove or disprove anything.

Secondly, over the years economics was tainted with ideology between the two extremes of laissez faire a la (Milton Friedman) to John Keynes’s government knows best. Both gentlemen fail to convince me with their arguments, mainly because their explanation of (economic) events are mere OPINIONS, not facts.

Thirdly, most economic theories are based on two assumptions, one that all (or most) players act rationally and two that all players has the same information (not necessarily all of it).

Just think how rational is Hugo Chavez’s oil policy or the Arabs place oil embargo on the west in 1974. Further how much information professional traders have about electronic trading outside the USA.

We know, as a fact, that there is no shortage of oil, that the storage tanks of stockfeed (crude oil) and products are in good shape, all pointing to a supposed reduction of prices, yet crude oil reach its highest price ever a week or so ago (I’ll get to the current price fall later).

The feeble excuses from the so-called experts tells me that they are either fools or con artists, I doubt that the are fools. Sure the demand from China, India and other developing counties would certainly increase prices, but such increase is gradual. Chinese and Indian demand does not explain this:

Crude Oil Price Band

What about the hurricanes in the Gulf (of Mexico) excuse? How long a hurricane lasts? Three days, four, a weeks? How can that affect the GLOBAL crude oil prices when the storage tanks around the world are full. And once the Hurricane has gone and prices did not come back, they, the so-called experts need to find other “reasons” to explain the high prices,

How about Mahmoud Ahmadinejad threatening Israel and vice versa, Give me a break! Iran is on its last leg to stop being an oil exporter, they are already importing oil products because they lack refining capacity to satisfy their own domestic demand – petrol (gas) queues are commonplace in Iran of today. Iran is expected to continue to export oil until their Natural Gas (LNG) reserves can replace their oil export earnings which is essential for their development.

The crude market has already allowed for no Iranian oil export, when that finally happens the effect on the market will be negligible.

BTW Indonesia already stopped exporting oil for the same reason, domestic demand, and subsequently is no longer a member of OPEC, it did not make the news because the market had allowed for it.

Do you get the same feeling I have that Something is missing from the tale of crude oil prices.

Crude Pricing

As we saw in  Part I crude oil prices are set by reference to prices “Benchmark” or “markers”, those are West Texas Intermediate (WTI), New York Mercantile Exchange (NYMEX), Brent, (Europe), Tapis (far East) and of course OPEC Basket. These benchmarks are similar to the more familiar stock exchanges indices such as Dow Jones, FTSE (London), DAX (Germany), ASX (Australia),  TSE (Tokyo) etc. Each collects in formation on stock trading in real time and express it as an index.

A crude benchmark has two facets; characteristics (quality) and location where the crude is pumped (or gravity fed) into transport. The is expressed in US Dollar per barrel. Any variation in quality or delivery position is usually express as premium or discount off the benchmark, as the case may be.

For example, if the current freight cost from the Persian Gulf to US East coast is say $1.50 per barrel, the price for barrel of oil on the East Coast will be $1.50 higher then the price of similar oil in the Persian Gulf (all other things remain equal), simple logic.

Similarly if the cost of storage is $1.00 per barrel per month (I have no idea what the real costs are) and next month’s future price is say $130 per barrel, I’ll be happy to sell you oil I am holding for $129 today because it will give the same net that as if I sell it in a month time and pay out storage cost.

Crude oil in the ground has no storage costs thus a change in the oil futures immediately translate into the spot price. Do you see what I see?

With regulations and people standing behind your back watching what you are doing, it is quite difficult, if not impossible, to fiddle the spot market, particularly if you are dealing with wet barrels (the physical oil) but with the advent of electronic trading, particularly on non-American markets, the possibilities of manipulating the market are endless, if you have the motive and the dough of course.

Knock Knock Who Is There?

Knowing the motives for trading in the future market tells us who are there. There are basically three reasons for trading any future market:

• Users of the product that is traded; those who take physical delivery.
• Hedging and other long term funds; those who use the (future) market to hedge their investments by reducing risk, i.e. shield them from market fluctuations, particularly downturns
• Speculators; those who are in the market to take advantage of short term changes in prices.

The only users of crude oil  are the refineries; to anyone else crude oil is a useless product. Refiners take positions on oil futures to protect the continued supply of future stockfeed (crude oil) at a known maximum price, remember, they can always not exercise their option to take delivery and buy in the spot market if the spot price is substantially (at least 10%) lower then their option price.

The refiners also participate in the futures markets by offering future contracts for their products, mainly gasoline and distillates (diesel and heating oils), thus it is only prudent for them to protect both their supply and the price the stockfeed needed to meet their obligations.

Sometime ago the aviation industry, namely the airlines “discovered” the futures market and have been high purchaser of jet fuel futures since. The do it to mitigate their fuel costs. The effectiveness of such strategy depends on many aspects but nevertheless the practices is wide spread among the airlines.

However, unlike Europe and Asia, the US does not have a futures market for jet fuel, thus the US airlines take positions on crude oil futures as a hedge against jet fuel price rises. But it goes further then a simple hedge, to hedge the costs  of one barrel (42 gallons) jet fuel the airlines need to buy 3 barrels worth of crude oil futures. Here you have it, a large demand for future “paper barrels” that is bought in order to be sold, those are the very same barrels that the refineries are bidding on to produce the jet fuel the airline are hedging – the dog is chasing its own tail!

Next are the hedge funds who use crude oil futures as part of their portfolio. One would expect the hedge to have commodity futures in their portfolio but the question is whether crude oil is more then just a part of the mix. To answer that one must know who are in the funds and what they actually hold.

Who Are The Real Speculators?

According to the Commodities Futures Trading Commission (CFTC) speculator is an entity that:

does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.

Such definition puts the hedge funds amongst the speculators, I disagree; speculation, in my view, must have short term aspect to it and whilst hedge funds may well speculate on occasions, by their very nature they are long term funds.

My definition of speculation is:

Speculation is trading with the object of taking advantage of short terms price differentials.

Hedge fund that hold a financial assets for 12 months is not speculating despite the fact that, by their nature, hedge funds “does not produce or use” anything. By the same token a refinery that produce products without having a ready market for it is speculating.

The reason I distinguish is that I see the speculators as harmless and their affect on prices minimal, this is not the case of the big funds, hedge and others such pension and super funds.

On 1 June 2007, the Dubai Mercantile Exchange (DME) , a joint venture between NYMEX and Mohammed bin Rashid Al Maktoum the ruler of Dubai (through a holding company) with the Sheikh of Oman in there too. Needless to say that DME is “regulated” by the government of Dubai, who???? … yes … Sheikh Mohammed himself!

Perhaps you care to take a look again in the crude oil prices and when prices last took off.

Since its inception, just over a year ago, DME traded about 390,000 future contracts (or 390 million barrels) of crude oil, this represents about 1 million barrels per day (mbpd) compares with United Arab Emirates (UAE) total production of about 2.5 mbpd.

How much UAE’s own oil is traded on the DME and what is the US portion is anyone’s guess but may I suggest to you that most of the oil comes from the UAE and Oman and most of it is in fact traded by American kind of hard to see the NYMEX get involved in exclusive trading between Arab Japanese.

Nice work Charlie, a semi American exchange operates under the radar of the American (or other consuming country for that matter) regulator, where the largest trader is the regulator. The optimacy of the golden rule, he who has the gold makes the rule.

And there is the so-called “Enron Loophole” that exempted electronic trading from  much of the regulation, whilst the loophole itself has been closed by the recent amendment to the Farm Bill, how much has skipped the eyes of the watch dog?

Here is a scenario, the total US annual consumption of crude oil is about 5.5 billion barrels, at “only” say, $125 per barrel makes the total value $690 billion, say $700 billion. The actual cash outlay to buy crude oil future is 10% of the value of the contract i.e. it takes a “mere” $70 billions to buy contracts that covers the US consumption for one year.

Question one: Who has the oil to offer such a quantity?

Question two: Who has $70 billion or so that can be used (or freed) to buy that quantity?

Question three: Do you still wish to explain oil prices by economic rules that are applicable to tomatoes?

© Copyrights Jacob Klamer 2008, all rights reserved.

27 July, 2008

If I knew what will be the price of crude oil tomorrow, I would not be here, I be sitting down on my own Island in the South Pacific, sipping Chivas Regal and employ a ghost writer to write my blogs. Seeing that I don’t know what will be the price of crude oil tomorrow, I will stay in Sydney, stick to tonic water and rant on by myself.

As someone who studies the subject formally I can tell you that Economics is the art (it certainly not a science) that provide excuses as to why the last economic prediction did not work. (Have you heard about the convention of clairvoyants that was cancelled due to unforeseen circumstances?)

Further, I suggest to you that anyone who KNOWS how to bring down the price of oil is a liar or a fool, myself included. Thus I try to shade some light on the issue that may assist you interpreting events and statements irrespective of their political origin.

What Is Crude Oil?

Crude oil is a mixture of petroleum products that is separated by a process we call refining (or distilling). The output of oil refining is called (petroleum) products  Crude oil is useless unless it is processed The relative amount of products in a barrel of crude oil, known as the characteristics of crude oil cannot be changed for a particular oil but it varies greatly between oil wells, in fact each well has it own “finger print” often , by identifying the well such spill has come from.

Light crude oil refer to oil with high content of “light” (or white) products such as petrol (gasoline), aviation fuel, kerosene etc. whilst heavy crude refer to oil with higher content of diesel, heating oils, fuel oil down to waxes and asphalt.

Traditionally oil is traded in barrels. A barrel is a volume measurements, it equates to 42 US gallons (about 35 imperial gallons or 159 litres). A barrel of light crude weighs less than a barrel of heavy crude oil, hence it is said to be “light”.

Sweet crude oil refers to its acetone-like smell indicating low sulphur content (less then 0.5%). Oil with high sulphur content (Sour) has a vile smell (a Middle Eastern public toilet would smell like a rose garden by a comparison, believe me, I smelled them both). Getting rid of sulphur is expensive, thus crude oil with higher sulphur content ought to be cheaper as it is considered inferior. Over a short period refineries are locked into the type of oil they process, thus forced into individual sources that maintain similar characteristics of oil that is compatible with their refining abilities. Lesson one: Crude oil is not an homogeneous product.

Refining Oil

Oil refining is a (chemical) contentious process, meaning it runs 24/7 and cannot be stopped. Restarting a refinery takes about 7-10 days until it reaches full production, at a daily cost of $100/200,000 (depending on size), therefore it is designed around the concept of continuous flow of stockfeed (crude) oil and products.

Crude Oil Distillation

A refinery that is in danger or running out of crude oil will pay just about any price for a shipment of crude to avoid shutting down heavy costs. Similarly a refinery that is running out of space to store its products will give it away at bargain base prices just to make space for more product rather than to shut down production. The exact opposites are also true in relation to storage space.

Lesson two: the spot prices for oil and its products are influenced more by storage space than by any other factor, including supply and demand. This is why oil “inventories” are crucial to oil prices, this is the theory anyway.

I qualified the theory because inventories alone do not tell the whole story. Right now crude oil inventories around the world are high, in fact, despite what you are told, there is NO SHORTAGE of oil at present which should result in lower demand and current low prices, yet it prices continue to soar.

Production Allocation And Pricing

With the exception of all western countries, all the global oil production (getting oil out of the ground) facilities are state owned. As a rule, oil is sold in Production Allocations, sometimes referred to as allotments or vouchers, to a panel of buyers, generally comprises of oil companies and oil traders.

Oil allocations came into the news when Saadam Hussein’s abuse of the “Food For Oil” plan were exposed whereby “vouchers” were given out to 270 people and organisation, with no relation to the oil industry, as bribes or payment for “favours”.

To be on the “panel” of Saudi Aramco ( to have an Aramco registration number), one must be a refinery or show has a Processing Agreement with a refinery. Traders may receive allocations if their allocation is going to a refinery not already receiving Saudi oil by other allocations. Allocation may be for a period or spot, it include total quantity, shipment ports and quantities, approximate shipment dates and price. Price can be nominal, e.g. US$ 130 per barrel, or, most likely, by a reference to Crude Oil Benchmark also known as Price marker, e.g. West Texas Intermediate (WTI) less $1.00.

With the exception of posted prices that are set arbitrarily, benchmarks are price indicators based on market trading information, take account of quality, gravity and place of delivery. Brent, Tapis, West Texas Intermediate (WTI), OPEC Basket, Dubai Mercantile Exchange (DME). In the USA domestic crude is traded by reference to WTI, Rotterdam Brent is used by in Europe and the Tapis is used mainly in the Far East.

An example for an allocation is 1 million barrels (about 140,000 tonnes)  Saudi Light Crude Oil (SLCO) per month, ex Ras Tanura (an oil port in Saudi Arabia), in monthly shipments at the 3 days average Brent Rotterdam (price) less US$3.00 as at date of shipment and other details

This means that the actual price of wet barrel (oil that is physically delivered, as distinct from “paper” oil) is not known until it is taken possession of by loading it onto a ship, rail wagon or pushing it into a pipeline.  That can be literally months after it was bought and at a very different price that the one ruling at the time of purchase.

The market

If I promise you that I shall sell you next year tomatoes at next year price, you would not buy them from me because you have no reason to commit yourself now to next year prices, whatever they are. However, if I promise to sell you next year’s tomatoes crop at this year price (plus a small premium) AND give you the option whether to take those tomatoes off me or not (should the ruling market price is cheaper than my price), you may take me up on my offer, after all you have little to lose – If the price at your supermarket is a lot higher then mine, you buy from me, if it is a lot cheaper you will buy is from the supermarket, as simple as that.

Not to make too finer point on the issue, this is how a future market works, whether it is shares futures or commodities’, including oil. According to the New York Mercantile Exchange (NYMEX) rules crude oil is traded in 1,000 barrels, monthly (executable on the last trading date of each calendar month) for the current year and the following five years, after which contract are six monthly (June and December) up to 9 years into the future, or in the words of NYMEX:

Crude oil futures are listed nine years forward using the following listing schedule: consecutive months are listed for the current year and the next five years; in addition, the June and December contract months are listed beyond the sixth year. Additional months will be added on an annual basis after the December contract expires, so that an additional June and December contract would be added nine years forward, and the consecutive months in the sixth calendar year will be filled in.

You can have the right for a contracted quantity of oil (in 1,000 barrels multiple) for next months, three, 6 or twelve months, up to 2 years if I’m not mistaken.

All you have to have is 10% of the value of the contract up front, the 90% is payable on delivery, if you ever decided to take it. Should you fail to take delivery, you would lose your deposit.

Under certain trading rules, you may of course sell your future entitlement any time before the due date. That allows “paper oil” to be bought and sold many times over, by oil traders. Those trader who buy oil in the hope a price rise are called speculators. Speculation, per se, is not a bad thing provided that all the players in the relevant market are playing on the same levelled field and abide by the same rules – I suggest to you that this is not the case when we talk oil.

Tomatoes and oil

Suppose you trade in tomatoes and bought a contract for next season at a price. Next seasons tomatoes’ price will be determined by supply and demand when the time comes, a glut of tomatoes will produce a reduce price whilst a shortage will produce an increase in price. Thus if the season’s price is under your contract price, you will not execute you ‘future contract’ but simply buy your tomatoes spot. If the season’s price is high, you would execute you contract and sell your tomatoes with a great profit.

Now suppose the largest supermarket chain in your country control most of the tomatoes market by per-buying the crop from the growers and now suppose that that chain offer you a “future contract” on tomatoes, would you buy one?

Under such conditions you would not but tomatoes future in a month of Sundays because the market is already controlled by a player in the market who can dictate the price, no matter what you do, you will always lose.

This is basically the case with oil, and oil futures in particular. The market is controlled by oil producers, who are largely a cartel thus in a substantial control over the market. Buying oil futures from the oil producing countries is like buying tomatoes futures from Wal-Mart, in USA, Tesco in the UK or Woolworth in Australia, you would not do it!

(Continues in Part II)

© Copyrights Jacob Klamer 2008, all rights reserved