Oil 20% Down, Price at the Pump Stays the Same, The-Powers-That-Be Hover Above & Beyond

Since May, crude oil has tanked from near-highs to near-lows. At the onset of May, crude oil traded above $105.  Since, it has fallen to $80.  Nonetheless, the prices at the pump have stayed the same. Although explanations are difficult to come by from the mainstream press, the phenomenon is likely not to be explained by the type of events which might affect a localized, freer market structure. Such as, an oil boom in a U.S. state. In this case, North Dakota’s economic conditions have led to a record setting increase in their oil production.

But, global economic factors weigh more on all markets, and a declining euro and appreciating dollar in the medium-term have provided the conditions for a decline in the crude oil price. But, the winners-and-losers are not who one might expect.

Yes, the oil price in dollar denominated terms is down. But, since the U.S. Dollar is up, and also since nearly each industrialized nation exchanges their currency for an over-appreciated U.S. Dollar before buying oil, they are mathematically not catching a break. Domestically, the break that U.S. oil titans are enjoying is not trickling-down to the public. Thus, in the U.S., citizens are culturally not catching a break.

Here’s the U.S. Dollar chart:

Hey, where you going!?

Ah, it’ll be back.

Here’s the Euro battered by bad press and shock therapy:

Notice the position of commercial hedgers. These are market participants to are allegedly hedging. So, for instance, in the silver market, a company that by its’ very own nature owns a very long position in the metal, would then have fair reason to short that metal in order to protect itself against market volatility. This is not always the case, however, as unfair positions are taken – against regulations – and large sums of cash are made from critical mass and casino bluffs.

Currently, these commercial hedgers are doing something counter-intuitive, if one is swayed by the media environment of lambasting the euro: the commercial hedgers are short the USD 50k contracts. They are long the Euro by 250k contracts.  Could the grounds be set for a Euro run-up back to 1.40 and thus a next-leg up for gold and silver in USD? Just an interesting side note…

To further demonstrate how the exchange into USD so as to buy crude oil affects other nations on the open market, here is the JPY:

Climbing back from lows it hit against November stimulus highs, certainly not the best place to sit for crude oil procurement.

Nonetheless, the developments in North Dakota is good for U.S. industry. (Perhaps the state can tackle pending issues with transport of natural gas to the open market for purchase and associated costs.) North Dakota has been a state nearly unscathed by the doldrums of what pundits have euphemistically called “the downturn.” Much of the credit is being handed to a state-owned bank in the state. Could it be this state-owned bank structure that has created the industrial conditions which would lead to repeat new records in crude oil and natural gas production? This logic makes sense. As Ellen Brown has written:

North Dakota has one thing that no other state has: its own state-owned bank.

Access to credit is the enabling factor that has fostered both a boom in oil and record profits from agriculture in North Dakota. The Bank of North Dakota (BND) does not compete with local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as a sort of mini-Fed for the state.

New figures released Tuesday demonstrated that, in April, there were 18.3 million barrels of crude oil pumped out in the state. This makes for a daily production average of 609,373 barrels.  This number climbs above the 17.9 million barrels figure from March, which was the first time North Dakota surpassed Alaska in crude oil production. The current top producers in the United States are Texas, North Dakota and Alaska, respectively.

That’s up from 17.9 million barrels out of 6,932 wells in March, the first time North Dakota surpassed Alaska in crude oil production to take the No. 2 slot among the states. Texas is No. 1.

Also setting a record in April, 19.5 million MCF (thousand-cubic feet) was drilled as a byproduct of drilling for oil.

California has averaged about 435,000 to 440,000 barrels a day for several months, moving sideways. Perhaps California will be the tidal wave that crashes the U.S. back on the front page?

North Dakota is current producing nearly 10% of total U.S. crude oil production, and their production has nearly quadrupled since April 2008.