Oil: There's No Doubt, We're In Deep Guys!

Illustration for article titled Oil: There's No Doubt, We're In Deep Guys!

So Big Oil is finally going to get some payback for its tireless efforts promoting that disastrous invasion of The Iraq! Megan and I are sooooo happy for them. The "unusual" no-bid contracts about to be awarded to Exxon, BP, Shell, Total and Chevron reunite all the original partners in the Iraq Petroleum Company that held a monopoly on Iraqi oil exploration until 1961 when some communist decided that wasn't "fair" to the Iraqi people and nationalized oil, which is incidentally what the Republicans are accusing the Democrats of trying to do over here. Newt Gingrich was on Fox this morning telling everyone America needs to "Declare Energy Independence" on July 4 this year but like this apparently Robert Palmer inspired propaganda poster points out we're probably going to have to figure out how to detox somehow, which would be one thing if we had some sort of growing employment sector to withstand the rising prices, like the South Koreans who are busy making all the ships out there looking for oil. That and Obama says no thanks to a nationalized campaign, some Bear Stearns guys get arrested and Larry Sinclair is insane with me and Megan after the jump.


MEGAN: So what did you miss most about the States besides good burgers? I was shocked in Europe in 1998 when I got served a horsemeat hamburger.

MOE: Well annoyingly I missed that you already covered the story of the rush to buy ships to drill for oil in the News Roundup, which is an interesting tale of the insatiable demand for deep-sea rigs, which cost half a billion dollars apiece, not that that's that's a big deal when, you know, just by way of example, Exxon's earnings before interest/taxes/depreciation/amortizaiton for the past 12 months (during which oil futures have probably averaged half today's price) was $77 billion

MEGAN: And, hey, if we built them here (ha!) it could revitalize the dying shipbuilding industry.

MOE: South Korean shipyards are making most of these things, incidentally. Didn't we used to have shipyards in this country? I feel like they've all been turned into luxury condo developments and office parks. Where are the world's cruise ships and container ships built?

MEGAN: I think the only thing our few remaining shipyards build are navy vessels. I'm sure the cruise and container ships are all built in low-wage, non-union countries.

MOE: Yeah but that doesn't really describe South Korea and it definitely doesn't describe Singapore.

MEGAN: I have two words that do, though: industrial subsidies.

MOE: Hahaha yes and its evil cousin INDUSTRIAL POLICY.

MEGAN: We have an industrial policy! It's called reducing the capital gains tax! And R&D tax credits.

MEGAN: Well, we could discuss this article in which a former DeLay staffer bothers to notice that Republicans are losing in moderate states by being too Christian conservative and not Republican enough, and rejects calls for the party to get more conservative and praises Rahm Emanuel.

MEGAN: So, he's making friends.

MOE: Is it possible to be in an industry that manufactures single products that weigh thousands of tons, provide the backbone of billions of dollars of global commerce, are giant combustible moving targets for terrorism and pirates and cost $500 million apiece and are generally ordered in eleven or twelve figure (often government) contracts…and not involve the government? No. And you know, shipping isn't going anywhere and shipbuilding = jobs. So why does it seem like the EU and the US just, like, gave that industry to Asia while they took the aerospace stuff? Admittedly I don't fucking know anything.

9:10 AM

MEGAN: I think the margins aren't that great, subsidies aren't passing muster with the WTO and we'd rather spend our government money on bombs and guns than big ass ships.

MOE: See, that is just our problem. The "the margins aren't that great" problem. Well, guess what, Samsung Heavy just raised prices $100 million, so 25%, and they know they could charge more. So the margins are pretty damn good now, because you're not just going to see someone open a competing shipyard specializing in deep-sea vessels down in Bangalore. Beyond that, with all the government intervention, the opaque accounting of the contracts involved, blah blah blah, the margins can seem almost impossible to calculate. Whatever, "the margins aren't that great" is just code for "it's hard." It's hard because the capital expenditures are huge, the labor costs are huge, and the price of fucking up is huge. But the thing about those cyclical industries we're always trying to get out of: for all those reasons the jobs aren't going anywhere.

MEGAN: I don't know that it's just capital intensivity, though. We have plenty of capital intensive industries in this country (like: heavy equipment manufacturing, for whom I used to lobby) that has survived despite it being cyclical and all the rest. I'm going to guess that the reason military shipbuilding has survived while commercial hasn't is partially because the margins on the military contracts are better.

MOE: Hahaha today on Fox they're trying to get everyone to back down from the accepted conventional wisdom that lifting the ban on offshore drilling would take 7 years to have an impact by finding some nutjob who claims it will only take 2. Since so much sentiment is packed into oil prices I suppose he could be right, but then we'd be willing that the markets are somewhat irrational or something?

MOE: Oh god now they're talking about the laxative cake.

MEGAN: I mean, it would take that long to have an impact on supply, not that I think supply is the problem or that drilling offshore would have a huge impact on it. But I'm sure the markets would get all irrationally exuberant about it and prices would dip briefly and then continue on their steady upward path.

MOE: Ah, Obama opted out of public financing.

MEGAN: Because the system is broken! And he has lots of money.

MOE: I love how all the people behind this inane Drill Here. Drill Now. Pay Less campaign are citing polling data that tells us 64% of Americans "Expect It Will Lower Prices." I wonder what those 64% of Americans thought invading Iraq would do! Besides destroy Al Qaeda which was financed by Saddam Hussein who was the half-brother of Barack Hussein Obama's Indonesian father?? Speaking of which, Iraq oil contracts…did you read that story?


MEGAN: 64% of Americans expect it will lower prices because the news media keeps repeating the fact that John McCain and George Bush want to do it to lower prices.

MEGAN: I didn't read the Iraq oil contracts story but, let me guess... corruption?

MOE: Well, the winners of the "unusual" no-bid contracts were Exxon, Shell, BP, Total and Chevron, who won out over some 40 companies including Chinese and Russian ones, and while they only last a year they give those companies a head start international observers are headscratching etc. etc.

It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq's Oil Ministry.


MOE: Here the Iraq is calling it a "stop-gap measure" just to get people in and digging etc. etc.

MEGAN: Right. Because what Iraq needs is obviously more US and European-based multinationals exploring for oil that everyone knows is there. Talk about capital intensive industries.

MEGAN: Once they're in there, they'll stay and everyone knows it.

MOE: And all but Chevron were original partners in the Iraq Petroleum Company so it's really like a Restoration of sorts!

MEGAN: Aw, how sweet, it's like a family reunion! Only with more money!

MOE: Holy shit two Bear Stearns executives were just arrested at their homes for…knowingly bilking some investors out of $1.6 billion

MEGAN: Wow, the government cares about that now? Also, by the way, Congressman Maurice Hinchey (D-NY) hs called for the nationalization of U.S. oil refineries.

MOE: Right I'm reading about that. The "Drill Here Drill Now Pay Less" of the Left is apparently some outfit called Oil Change International, or at least they're spinning it that way. Remember that Crappy Hour a few glorious months back when we actually read long stories where we discussed the pros and cons of the global shift toward the nationalization of oil? Yeah I don't really remember either.

MEGAN: Do I remember Crappy Hour yesterday?


MEGAN: Hey, do you remember when we were all shocked that the Air Force mistakenly sent nuclear components instead of batteries to Taiwan? Well, it turns out that they're actually missing like 1,000 sensitive nuclear parts and that's why the dudes got fired. Hopefully we didn't ship those to, like, China or something.

MOE: That reminds me there was something in the paper about Taiwan President Ma Ying-jeou's new China policy which isn't really a new policy, it's just more like an attitude, because Ma is "mainland Chinese" meaning his first language is Mandarin and he came over with Chiang Kai-shek and the last president was a "native Taiwanese" meaning his first language was Hokkien and for most of his adult lifetime he was one of the majority of the population who had Japanese colony nostalgia (this nostalgia did not go over well with the mainland Chinese) .. anyhow but see, we're missing the real meme here, which is Larry Sinclair at the National Press Club.

MEGAN: I sooooo wanted to go, but I had to blog yesterday.

MEGAN: By the way, the HuffPo story on it is even more epic.

MEGAN: I love, too, that they get Clinton supporters on the record being all like, well, the crazy guy might be telling the truth, he really could've sucked Obama's dick.


And pay Sinclair did — for the venue and its microphone, as well as for a kilted lawyer (with a suspended license) named Montgomery Blair Sibley, who informed those assembled that his preferences in dress were arrived at as a way to secure comfort for his unusually large sexual organs. "I don't know why men wear pants," he said with a poker face. "It's a function of male genitalia. If you're size normal or smaller, you're probably comfortable with [pants]. ... Those at the other end of the spectrum find them quite confining."

"I asked him to wear a suit and tie," Mr. Sinclair said ruefully. Then, he admitted to suffering from a brain tumor.


MOE: What?

MEGAN: I know, how sad are you that we weren't there? By the way, Sibley was the DC Madam's lawyer and is somehow connected to Larry Flynt and Sinclair was hinting around that he was going to have a special surprise guest so the media showed because they thought Larry Flynt would be there.



@Too Hot For TNR: The FT's article [www.ft.com] and the CFTC press release [www.cftc.gov] are maybe a little clearer. Basically, West Texas Intermediate oil contracts are a U.S. benchmark. 70% of the contracts are traded on NYMEX and about 30% are traded in London, on the ICE. CFTC and the FSA have an agreement about information-sharing that was implemented in 2006. The CFTC has just announced revisions to that agreement involving more information being passed from the FSA to the CFTC, and on an in-time rather than weekly basis. But they didn't clear the announcement with the FSA first, and that's why the FSA is pissed.