There are three reasons for the huge spike in the oil price, starting in 2004; they are: 1) the pricing method; 2) type of refining capacity; 3) non-commercial oil futures speculation.

1. Oil is priced using only two grades of crude: WTI and Brent or the light, sweet crude that is always in high demand. The heavy, sour crude is discounted to the good stuff. Of course, there is less of the sweet crude and more of the sour crude. But the price drop in October 2006 through February 2007, when there was significant, monthly, inventory growth over 2005 on WTI at Cushing, OK, does not indicate robust price support at the margin; the imbalance was corrected in 2007.
2. There is a heavy, sour crude, refining capacity deficit; if refinery capacity were increased to handle this source, demand pressure would be decreased on WTI or Brent and their price should moderate. But environmentalists don’t want refineries…no one wants them [NIMBY]. As an example, look at the denial of the ConocoPhillips (COP) Wood River Refinery expansion in Illinois [Appeal No.07-02]; it was going to handle heavy, Canadian crude. A view of the Environmental Appeals Board work is instructive as to any possibility of future capacity expansion. Couple environmental obstructionism with refinery cost, government refining requirements and the bottleneck on expansion is assured.
3. Non-commercial, oil futures speculators only add financial pressure to the commodities market. These parties are significantly different from the commodity producers and buyers [hedgers] who trade oil in order to manage the risks of rising or falling prices in their own businesses. They are engaged in price discovery as producers and users of oil. What ‘special knowledge’ would speculators add that commercial hedgers don’t? They add more trading volume, but that was never a problem needing a solution. They do bring a mode of excess; best described by Charles P. Kindleberger in Manias, Panics, and Crashes: A History of Financial Crises. Futures positions can be closed using Exchange For Physicals [EFP] by private negotiation and informing the exchange. While the CFTC prohibits ‘’wash trades,’’ how would they ever know if this method or other tricks were used by world traders to disguise fictitious trades.

Therefore, any measures that help reduce demand for WTI or Brent by increasing the availability of sour crude refining or lessen demand by putting automobile power usage partially on the electric grid, and restrictions on commodity speculators would be helpful.

The Commodity Futures Trading Commission implements the Commodity Exchange Act. Within the Act the Commission can prohibit "Excessive speculation" Sec.6a(a). Their rules do not apply to the traditional futures-market participants, commodity buyers and producers, that trade oil in order to manage the risks of rising or falling prices in their own businesses.

But for a "Eligible contract participant Sec.1a(12)", whose definition includes any financial institution, there are prohibitions. Sec.6(a)(1)(2) states that it is unlawful to enter into or confirm a transaction described as a "wash sale" or "accommodation trade" or "fictitious sale" so as to, "cause any price to be reported, registered, or recorded that is not a true and bona fide price." This Act was changed by the Commodity Futures Modernization Act of 2000. One of the sources for this Act was Phil Gramm. He is now the economic advisor to McCain.

The growth in the price of oil is generally viewed as due to three, fundamental factors: rising demand [especially from Asia]; constrained supply or delivery interruptions and; the weak dollar. Let’s examine each factor:

David Kostin of Goldman Sachs, in a recent article, lumped Bank of America (BAC) into a category labeled as big banks with non-interest income of "76% of total earnings"; lets go to BAC's Investor Fact Book 2007. Non-interest = 48% of total income or, 37% smaller than Mr. Kostin's claim. Non-interest has nine categories; three of possible current concern are: Mortgage Banking = 1.3%; Other = 2.1%; and Service Charges = 13.4%. Mortgages + Home Equity = 22.3% of assets.

BAC has recently completed a $12 bil. preferred sale [plus VISA IPO for appx. $546 mil.]. That, coupled with other measures should boost Tier 1 Capital from the current 6.8% to 8% [the regulatory minimum is 4%]. Assets as of 12/31/07, following FAS 157 of Nov.14, 2007 are at: Level 1 = 14.2%; Level 2 = 79.0%; Level 3 = 6.8%.

Some view Kinder Morgan (KMP) as just a way to funnel fee income to the General Partners [GP] at the expense of the Limited Partners [LP].

United Health (UNH) is down, but has it been dragged down by WLP, HUM, & CVH specific problems - or industry and company related issues?

Let's look at their Medical Care (Loss) Ratio and Operating Margin respectively, for six quarters: