Today the Washington Post reported that John McCain has a solution to America's energy crisis: Drill more oil by opening up more federal lands. The solution is not surprising, given that Sen. McCain has taken nearly $1 million dollars in contributions from Big Oil so far this year.

There's only one problem: There is no guarantee that the leases will be drilled. And even if they are drilled, there is no guarantee that the oil won't be sold to foreign nations.  Second, the plan is little more than a continuation of Dick Cheney's 2001 energy plan.

The flaw in McCain's plan is that it relies on the oil industry to actually drill for oil on the land that it leases. It assumes that we have a competitive market for oil and that large mulitinational oil companies will rush to drill once the lands are made available.

This assumption is highly unlikely. According to a new report by the Congressional Committee on Natural Resources, oil companies could immediately begin harvesting an estimated 4.8 million barrels of oil each day from existing leases on U.S. lands.  The report notes that according to the federal Minerals Management Service, 79% of the USA's underground/undersea oil supply is already available for leasing.  

"Drill Our Way Out of It" is not a new idea. In fact, it is a very old idea crafted entirely by the oil industry in an effort to keep the USA dependent on imported oil for the next 50 years.  "Drill Our Way Out of It" is Dick Cheney's original, failed energy policy of 2001 (click here to read the actual policy). It should be noted that the Cheney Plan was crafted entirely by oil and energy industry executives (source) including convicted energy criminal Ken Lay, who was later identified as a key participant in creating the rolling blackout energy crisis of 2001.

For years the oil industry has used a similar argument to "Drill Our Way Out" to explain high gas prices. For example, it has repeatedly stated that "no refineries have been built in the last 35 years."  This is a carefully crafted statement that is intended to deceive voters into thinking that the government is rejecting refinery applications. 

The reality is that the oil industry doesn't want to build new refineries because more refineries mean more gasoline. More gasoline means the price of gas goes down, and that's bad for profits.  If the industry really wanted to build more refineries, it could have taken advantage of George Bush's 2005 energy plan, which made abandoned military bases available to oil companies that wanted to build refineries. To date, not a single company has taken Mr. Bush up on his generous offer.

So far, Big Oil's phony supply side arguments have worked. Millions of Americans believe that the solution to high gas prices is to let the industry build more refineries.  Now, Big Oil is using the same distorted lie to explain high oil prices by suggesting that we can drill our way out of this mess by exploiting treasured national parks.

And unfortunately, Sen. McCain believes them. 

Hypothesis: Some gas stations' pumps are not reflecting the amounts of gas you put into your tank. So, a call to action is requested.

To confirm or negate this hyporthesis, all of San Diego County residents are challenged to check each pump used to make sure you're getting what you pay for by taking the time to protect yourself and stop any potential rip-offs. Whichever grade you are using, put EXACTLY 10 GALLONS in your tank and look at the dollar amount. If the dollar amount is not EXACTLY 10 times the price of the fuel you have chosen, then the pump is rigged.

Wherever you pump gas, please check the 10 gallon price. If you do find a station that is cheating, please do the following: 1) Keep your receipt; 2) Note the pump number; 3) Note the grade of fuel; and 4) Note the time of day and date. IF you have a cell phone, take a photo of the pump. 5) Note the name of the station and the location.

Action: 1) File an on-line complaint so we can notify the authorities.

I hope this practice isn't widespread. But, if we're trying to save money and stop price gauging, then let's get proactive in ways we can gather evidence and get the rip-off stopped.

Paper money chasing paper barrels

The cost of oil keeps screaming higher while reports keep showing that demand for oil is down. Even the Saudis admit that their product is overpriced, yet oil and gas markets remain more volatile than ever.

At issue is the fact that the market mania has been driven by two factors: a weak U.S. dollar and speculators trading paper barrels with paper money on the New York Mercantile Exchange (NYMEX) futures market. Let's look briefly at each factor:

Speculators are creating artificially high prices and the illusion of high demand by "flipping" paper barrels.

You've heard of "flipping" homes, right? In a home flip, you buy the home, take possession of the mortgage, and resell it quickly at a profit without even living in it.

Right now, investors are flipping paper barrels of oil. These investors will never take possession of the oil they buy - they're just in it for a quick-and-dirty profit. This flipping of paper barrels has helped create an artificially high price for oil on the NYMEX.

Here's how it works:

NYMEX, or the Merc, is a clearinghouse for barrels of oil delivered one month into the future for WTI oil, which stands for "West Texas Intermediary" oil.

Today, early trading on the NYMEX set the price of a barrel of WTI at nearly $140 a barrel - an all-time hand-me the nitro-and-call-the-paramedics record high.

Now what's important to know about the NYMEX WTI price is that this is the price that everybody in the world watches, even though the amount of oil that is actually delivered or used through NYMEX is a very small amount.

What this means is that when the price of NYMEX oil goes up, it sets off a chain reaction on global oil markets. If the NYMEX price surges, prices will also surge for Brent Crude futures in London. oil futures on the Nikkei, and so on.

None of the traders buying these contracts will ever use the oil they purchase. In fact, most of them have nowhere to store the oil because they are speculators, not oil people. Yet, it is these same speculators who are driving up the price of oil by creating the perception of artificially high demand and artificially high prices.

San Diego recently encountered a similar situation with housing: Real estate agents were buying up multiple condominiums as investments. These investors purchased far more homes than they could live in, believing that they could resell them at fantastic profits. So many real estate agents began flipping homes that it created an artificial demand for housing. Across the street from UCAN, a "condo-flipper" paid nearly a million dollars in 2005 for an 800-square-foot condo on 5th Avenue. The buyer was certain the price would increase. That buyer was wrong. in 2007, the same condo was auctioned off on the street last fall for less than $350,000.

What's important about this story is that our greedy, condo-flipping Realtor helped create a false demand for condos that helped drive up the price. He or she had no intention of living in their new condo. And because of this condo-flipping, real homeowners ended up paying too much because there was a shortage of housing.

The same thing is happening on the NYMEX - the people who are buying the oil have no use for it. They do not own refineries, pipelines, or gas stations. All they own is the paper. They are just like that condo buyer with a mortgage for a home they'll never live in.

And this is where the paper trades get crazy.

According to OPIS, the Oil Price Information Service, on Friday, June 6, more than one million contracts for oil were traded. This represented more than ONE BILLION barrels of crude oil. The numbers are as ridiculous as that overpriced condo we mentioned earlier - one billion barrels of oil is equal to 15 years of WTI production. Paper, not oil, is changing hands. If one billion barrels of oil were actually being delivered in New York Harbor next month, the value of a barrel of oil would drop to about three dollars a unit, gas would cost 78¢ a gallon, and Wall Street would be submerged in about three feet of oil because there would be no place to store it.

Oil prices haven't increased that much, rather the value of the dollar is dropping ...

In November 2002, the Euro and the dollar were almost equal in value: one dollar was equal to one Euro (see graphic).

At that time, NYMEX oil was trading for about $25 US a barrel (or about €25 Euros per barrel). Today, that same barrel of oil costs $131, or about €85 euros (click here for historic conversion rates, click here for historic NYMEX oil prices).

In other words, if the U.S. dollar wasn't being devalued, the price of oil right now would be about $85 a barrel. That means the dollar is inflated by about 154% over the Euro.

This has resulted in "capital flight" away from the dollar into oil. Meanwhile, the relative value of oil has increased because it is worth something, whereas the dollar is being aggressively devalued.

The problem is that the U.S. has been forced to devalue its currency in order to pay its war debts. This is the traditional method that governments use to pay off war debts. By inflating the dollar (i.e. printing more dollars), it allows the government to pay off its debts in cheaper dollars than what were originally loaned. It's sort of like borrowing an ounce of gold from somebody and then paying them back with half an ounce of gold. It's a great deal for the debtor.

This is why inflation has been called the "cruelest tax of all." Strong dollars that were borrowed by the USA are being paid back in weak dollars that aren't worth as much money.

And that's why your gasoline costs so much more than it did a few years ago: Traders are buying paper barrels with paper money.

No wonder Alan Greenspan recently wrote that the current crisis will likely be "the most wrenching since the end of the second world war." (Financial Times)

It all sounds good on paper. But in the real world, the fate of nations hang on the cost of oil.

Why burning down gas stations is unlikely to spark lower gas prices

In the sleepy town of Danville, California a 64-year-old arsonist Diane Craig woke up on Wednesday morning with a burning desire to do something about the volatile gas prices in her community. Her plan: Start burning down gas stations. (see story below). Ms. Craig began lighting the way to lower gas prices around 10 a.m.

It almost worked.

Diane successfully started fires using "fire logs" at two local stations before she was apprehended. Apparently, Ms. Craig is a woman of action. The authorities say she had eight more logs in her car. In addition to the two gas stations she set on fire, she also tried to torch a local Starbucks.

(Starbucks is one of the few liquids that costs more than gas).

As someone who has protested high gas prices in Southern California for more than ten years, I have to admire Diane's enthusiasm. And given the high price of Starbuck's coffee, her reaction is completely understandable. But thinking about crazy things and actually doing them are two entirely different things. That's why Ms. Craig's methods fail to get me fired up about burning down gas stations. First, it is illegal, second, it could kill somebody, and third, you could end up in jail with a cellmate named Bubba.

Those are the logical reasons, but if you're a real firebrand radical, logic may not be enough. That's why I'd like to respectfully suggest three other good reasons why arson is a bad way to fan the flames of change.

#1: The gas station retailer is getting bent over an oil barrel, too.

Right now, gasoline retailers are lucky if they can make 6¢ a gallon profit on
their gasoline. That means that for every 12-gallon tank of gasoline you buy,
the dealer makes about 72¢ ( Rooty Toot!). This is why gas stations are closing
in record numbers.

#2 The oil industry actually wants fewer gas stations ...

This may sound sound a bit far-fetched, but the truth is that the oil companies really
dislike all those pesky gas stations. Here's why: In areas where there are lots of
gas stations, gas prices are cheaper. This is because more stations means more
competition. As a general rule, the oil industry does not like competition - it's bad
for business. By burning down a gas station, you are simply helping Big Oil make
more money at your expense.

#3 The oil industry LOVES gasoline fires.

It is an undisputed historical fact that Big Oil makes big profits from gasoline fires.
Every time there is a fire at a major refinery, the price of gasoline shoots up. These
price hikes are always followed by reports of increased industry earnings. Coincidence?
I think not. So if you set fire to a gas station, all you are doing is making more money
for the oil industry. Please think about that.

What's the solution?

If you would like to fight high gas prices, there are better ways than burning down gas stations. Specifically, the best way to fight back is to stop using gasoline. If you can't do that, then find a way to use less gasoline.

They hate that.

Which brings me to my favorite tool for cutting fuel consumption: UCAN's Guzzler Buster. Not only is this 28-page book free to any San Diego resident, it has 127 tips for increasing your miles per gallon.

Try it - it could keep you out of jail. But be advised ... at this price we're burning through them quickly.

Danville woman started fires to protest gas prices, police say

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