60 Minutes Oil Story Misses Mark

So, 60 Minutes did a piece on Oil Sunday night and, well, oops..

First here is the piece.

Those who do not want to watch it here are the crib notes. A Wall St. cabal controls oil markets that Enron set up to manipulate prices. There is a little more but not much..

Let's look at some of the claims...

Production: Here is the EIA world oil production chart:

For those who want it, here is the link

One thing you'll notice, production, unlike the claims of the piece, did indeed fall. In fact, as price rose during 2007, both US, Persian gulf and worldwide oil production was below 2006 levels. As the super spike began in 2008, the Pershing Gulf region increased production roughly 10% to capture the high prices. What is alarming is that US production again fell (could not capture high prices) and worldwide production gained only 6%.

Let's look at demand: (million of barrel per day world demand)2004 - 82.412005 - 83.822006 - 84.952007Q1- 85.84 Q2- 84.88Q3- 85.54 Q4- 86.942008Q1- 86.07 Q2- 85.27

Again, here is the link

So, despite what the 60 Minutes piece said, world demand for oil waned only slightly during the spike period and production was only then ramping up. Let's not forget, in Q2 2007 demand fell only to accelerate again to record highs 6 months later.

What happened after? Demand destruction. The global recession we are entering eviscerated demand and with the recent increase in production, the price that peaked in July 2007, collapsed. The problem is production has also, but that is a story for the next oil spike.

What did the EIA say in June 2008?

Here is how the EIA modeled oil prices based on "fundamentals", again in June 2008.

Now, was oil priced correctly at $147 a barrel in July 2008? No. There was some speculative excess but to suggest that what happen in 2007-2008 was "speculators" lacks in any basis of fact. Is oil priced correctly at $40 a barrel today? No. Far too low. Good, I'm buying...

For 60 Minutes to imply that supply /demand had very little to do with the oil price increases in 2007 and early 2008 is counter to what the EIA was saying. It does make a nice little story to blame it all the villain of the day, Wall St. and to bring back to ghost or Enron, but it is still shoddy work on their part. Now, it isn't as bad as forging documents to try to steal a Presidential Election, but is is just as dishonest..

Those those who want to buy oil, the tickers are (NYSE:USO), (NYSE:DBO) and (NYSE:DXO). DXO is a double long ETC so it will be twice as volatile as the others..