Oil Producers Are Now Hoarding to Create Price Rise

The New York Times is reporting that while oil continues to be pulled from the ground, some of it is being withheld from the market to provoke a rise in prices:

HOUSTON — From the Indian Ocean to the South Atlantic to the Gulf of Mexico, giant supertankers brimming with oil are resting at anchor or slowly tracing racetrack patterns through the sea, heading nowhere.

The ships are marking time, serving as floating oil-storage tanks. The companies and countries leasing them for that purpose have made a simple calculation: the price of oil has fallen so far that it is due for a rise.

Some producing countries are trying to force that rise by using the tankers to withhold oil from the market, while traders are trying to profit by buying cheap oil now to store and sell at a higher price later. Oil storage has become so popular that onshore tank capacity is becoming scarce.

Only six months ago, companies up and down the energy pipeline were rushing oil to market, struggling to keep up with galloping demand and soaring prices. Now, with the global economy slumping and people driving less, demand for oil has plunged — and the same companies are acting in ways that would have been unimaginable until recently.

Oil producers are shutting down rigs, refiners are producing less gasoline, and investment planning throughout the industry is in turmoil.

Of course, supply and demand can be a delicate balancing act. Should prices start to rise and producers decide to release some of this oil, supply increases and can thus force prices back down. One thing for sure, this news won't help the oil companies in the eyes of the public.

Meanwhile, Hugo Chavez, who nationalized his nation's oil production, is now scrambling to find a Western oil company to come in an bail him out. As it turns out communism is not as good at running an oil company as actual oil companies are.