The Koch Brothers Contango Strategy: Oil Prices as Political WMD Against Obama

Gasoline prices are up. These ‘mysterious’ spikes every few months are palmed off on Libya or Iran, but they trace back to the Koch Brothers “contango” strategy. With an economy on the mend, are the billionaire brothers turning a profit center into a political weapon of mass destruction aimed at their very public enemy, Barack Obama?

First, you might ask: ‘What the heck is a “contango” strategy?’  As we outlined in Things Get Worse with Koch, it is a tactic by which owners of commodities with the billions needed to hoard that commodity for short periods take a lot of crude oil off the supply chain long enough that they can artificially manipulate the prices upward.

Let’s say that a ‘worry’ comes along. Unrest in Libya. Higher demand in China. The threat of attack on Iran’s nuclear programs.

High prices are not good business for the huge oil barons in the Middle East.  Nor is it good for the large oil companies. When gas prices stay high, people tend to switch to fuel efficient cars. They look for ways reduce consumption by switching to other energy sources. Both hurt the oil export business long-term.

OPEC, the consortium of Oil Producing and Exporting companies, often adds supply to meet most of these spikes to avoid killing that golden goose.  So why do the oil prices go up, in spite of that price support?

Traders in the public commodity market usually speculate on the price.  Given the right circumstances, they can be stampeded so that oil spikes upward on fear of shorter supplies.

Contango traders like the Kochs, the fourth richest private billionaires in the world, have enough money to go beyond speculation.  Wealthy speculators can exercise control over the price, and start that stampede.

When a good pretense in the news comes along, contango traders hoarde oil at lower prices.  They park it in storage tanks and even, at times, super tankers flush with crude idling off a coastline at hundreds of thousands of dollars a week.

Take enough supply off-line and it artificially drives prices up. Then the contango traders sell on the high, and pocket the huge windfall.

It doesn’t stop there. After they cash in, contango traders bet against the price rise that they created by short selling the commodity.  That’s a bet that the price will go down, not up. It isn’t much of a bet when you know that you can influence the price.  The smaller investors investing in the commodity have their hat handed to them as the Kochs, Goldman Sachs, and a handful of other large players suck even more money out of the artificial price wave on the way down.

Contango trading, this hoarding, is illegal.  Unfortunately, both the toothless Commodities Futures Trading Commission (CFTC), and the Consumer Financial Protection Bureau (CFPB) which Elizabeth Warren was supposed to run, have been stripped of power and roadblocked by the GOP lap dogs of the Kochs at every turn. Thus far, the CFTC has only turned a handful of small fish over to the Justice Department for prosecution, and the CFPB has been mum on the subject of contango trading.

This, even though the people who do this for the Kochs for a living, have openly bragged at meetings and investing events about developing the strategy in the first place.

How is this a political WMD to be used against Mr. Obama?

Just as there was a concerted effort to gridlock government to keep Mr. Boehner’s favorite word “uncertainty” alive in an effort to hurt the President’s push to restore the economy post-Bush, there is going to be an attempt by the Kochs and the GOP to paint Mr. Obama into a politically negative light on oil prices, and perhaps slow, or derail, the fragile recovery.

Pain at the pumps accelerates the white independent mass of voters angst about the Scary-Black-Man-in-Chief.  The same shocking majority of Americans who swallowed the birther bilge consciously or subconsciously hand-wring over whether a black man can make smart decisions in the White House.

Presidents in general take the hit for bad news in the economy, but add the 393 years of slavery and discrimination against people of color on our shores into the picture and a ten cent spike in gas prices, or twenty, and you have a political IED from two of the most powerful members of the Dead Billionaires Club (DBC).

This in spite of Mr. Obama’s financial record, includes preserving millions of jobs by way of salvaging the now shining auto industry, keeping us out of a second Great Depression, fending off last year’s contango price spiking, and making Wall Streeters as accountable as you can in a world where the Kochs and the DBC own the majority interest in Republican politicians on Capitol Hill and in every state house of the Union.

The hope is that the very fragile recovery will be damaged just enough to derail it for a few months, and send Mr. Obama’s political future into the toilet.

The Obama Administration is not completely defenseless.  They can drop oil from the Strategic Petroleum Reserve into the system to level out prices, as they did last year when the Kochs were playing games with gas as we noted in The Other Strategic Use of the Strategic Petroleum Reserve: Screw the Koch Brothers & Goldman.

Even in a non-election year, Republicans, with dollar bills falling out of their campaign finance pockets from the DBC, railed about the unethical use of the Petroleum Reserve.

Expect the noise in the media to be that much louder as the stage is being set by the price increases at the pump going on around you as this is written.

This year, if Mr. Obama has to pull that trigger, watch how Roger Ailes’ Fox News propaganda machine, and Rupert Murdoch’s newest propaganda paper, The Wall Street Journal, and  CNBC’s Larry Kudlow, an undisclosed director of the Junior DBC League, the Club for Growth, will lead the rally to skew the general public’s view of Mr. Obama as weak and/or a Socialist and/or a political opportunist if he uses the Reserve to stabilize prices and keep the U.S. financial recovery moving forward.

The Waffle in the Wind, Mr. Romney, and the Libertarian warriors Mr. Santorum and Mr. Paul, all will be well coached on how to use it to the GOP’s advantage.

This isn’t “conspiracy” theory.  It’s simple economics that lead to the radicalization of politics so a few people can protect their scam.

The Kochs are staunch anti-government 19th century capitalists. No social safety nets. No regulation. Recall their stooge, Grover Norquist, whom fallen lobbyist and felon Jack Abramoff even felt uncomfortable with for his mission to reduce government so he could “drag it into the bathroom and drown it in the bathtub.”  [1]

Every Teahadi bill, every bit of fiscal legislation pushed by the Republicans over the last two decades, drops in line with those goals.

They assume that you are too stupid to figure any of this out, and that millions of conservatives can be manipulated into their point of view as they lob a few hundred million dollars worth of political advertising smoke screens and a couple hundred Astroturf grass roots groups into the mix.

It works. I met a lovely couple on Sunday who argue that food stamps and welfare cheats are what are running up our deficits. Paul Ryan is their  patron saint of balancing the budget cutting programs that keep people “needy” to the government.  Forget that the largesse of the capital gains tax breaks are the biggest social welfare program, for the rich, worth trillions more in handouts than food stamps.

This couple exhibit the symptoms of the disease of Libertarian fascism, spread like a virus through a Fox-infested media that kowtows to Right-wing extremism.  It has dragged the rest of the Fourth Estate guardians of democracy into ineffective stupor, skimming the surface of things like contango and talking about the effects of the price waves, not the root cause.

When you see the spike peak, and you hear the punitocracy’s cries that Obama is “weak” for putting out the fire with a SPR release of oil into the market, remember how the game is being played.  Speak out against it on the Internet.  Chat up your news’ opinion pages, facebook pages, and don’t let the distortion machine mask contango.

Lobby the attorney general to finally get off his padded chair and take on the Koch Brothers and their ilk.  Make those who scam the system accountable, as well as civilly and criminally liable, for their pain games at the pump.

About Brian Ross

Brian Ross is a writer, screenwriter, political satirist, documentarian, filmmaker and chef. Ad hoc, ad loc, quid pro quo... so little time. So much to know!

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