I realize how alarmist I sounded in that last post; I just found it….alarming. The concept and practice of oil speculation is not alarming to me, but the numbers today are. A 60% price increase over six-months, how is that justified by market fundamentals? Gheit is saying there is $40 of risk premium in a barrel; I can understand $15-20, but $40? That’s doing some serious restructuring to the global economic order, and having a significant impact on our balance of payments.Originally Posted by Ski
Our balance of payments have been way out of whack for years now, and the high price of oil has little or nothing to do with it. Much of both have much more to do with the rapid pace of East Asian recovery and Chinese industrialization over the past decade than various crises in the Middle East.
When the going gets paranoid and reactionary, the paranoid and reactionary go pro. When paranoid and reactionary go pro, they go LaRouche:
Bankrupt Speculators With $25 Per Barrel Oil, by Richard Freeman and John Hoefle. Executive Intelligence Review, June 11, 2004.
If you can handle the inevitable crap that comes with reading anything put out by the ‘Rouchies*, then I think this is a pretty good article. I think it illustrates some of the market dynamics at play.
"Simple minded" is harsh. But you write off the role of oil speculators in setting the price and assign the role to producer nation's. Oil producing nations ability to influence price is derived from their ability to control production (supply). OPEC is a cartel of producers who seek to pool their influence. As a result of embargoes in '70's, petroleum exchanges were established to undercut OPEC power by abandoning fixed long-term bilateral trades for more fluid "spot" trades. In the Foreign Policy interview with Gheit, he is saying that the supply (where the producer nations price influence lay), and the demand does not explain the high prices. Rather, it is the result of speculators.
You do bring up an interesting subject about petrodollars** Here is some food for thought:
From Petrodollars to Petroeuros: Are the Dollar's Days as an International Reserve Currency Drawing to an End? by Robert Looney. Strategic Insights, Volume II, Issue 11 (November 2003)
Are 'Petroeuros' the future?, Oxford Analytica
*Good article about the LaRouche bunch in the latest Washington Monthly
** I've exercised to ghost of Howard Beale here, and am obligated to post this
"Petrodollars" vrs. "Petroeuros" - Let's go back a few years...
...Back to when the establishment of the Euro was first being voted on.
If you go back & look real hard, there were just a few (I mean, a very few) thinkers who really put on their thinking caps and did some interesting speculation about "What If...", and specifically with the creation of the Euro as the international currency replacing the dollar for oil/petro based purchases.
Their overall conclusion seemed to be that this wouldn't necessarily be a good thing, certainly not for Europe as a whole. Their base logic was that such an occurrence would dramatically strengthen the Euro, but an unavoidable direct result would end up having to be a major transformation of a number of different European nation's governing structures, in particular economically related.
Logic being that in their viewpoint (can't find the material on the web, at the time these guys were looked at as being "way out there"...HA!), the Euro is by nature a "statist/evolutionary" currency, whereas the dollar is to a much greater degree a "activist/creative" currency. Both currencies represent the respective aspects of each society.
The EU is a substantial trading economy, but a strengthening national currency such as the Euro is not good for international trade. The stronger it gets, the more their trade markets become unfavorable. Making it the primary currency component for oil purchases (Petroeuro) does the EU no favors.
The EU economy is substantially based upon trade. But if their currency becomes so expensive (because of the demand for Petroeuros) that many parts of their trade market are unsustainable, what are they going to do to maintain their standards of living? Innovate?? New technologies and new growth markets? Develop new Entrepreneurial markets??
The "Thinkers" back then were very pessimistic over the EU's ability to adjust (not to adjust quickly, but just to adjust, period) to take into account a situation where the oil cartel has just hijacked the Euro, and in effect, turned the entire EU into their own currency exchange, while crippling the EU's main economic driver, which is their export markets.
And then they posed the big question. If this (then, unthinkable) situation really did occur, what would be the impact on the political structures in the different EU national governments, not to mention Brussels?
Ummm ... okay. I will just say that no one who works in forex thinks like this. I'd really like to know the names of these thinkers you are quoting, and what banks or institutions they work for.Logic being that in their viewpoint (can't find the material on the web, at the time these guys were looked at as being "way out there"...HA!), the Euro is by nature a "statist/evolutionary" currency, whereas the dollar is to a much greater degree a "activist/creative" currency. Both currencies represent the respective aspects of each society.
What's the euro zone's current balance of trade? Compared to the U.S.?The "Thinkers" back then were very pessimistic over the EU's ability to adjust (not to adjust quickly, but just to adjust, period) to take into account a situation where the oil cartel has just hijacked the Euro, and in effect, turned the entire EU into their own currency exchange, while crippling the EU's main economic driver, which is their export markets.
Oil producing countries, while significant, do not have the swing in global markets to decide who becomes the world's reserve currency. The dollar will still hold sway in that arena for years to come. But let no one doubt that being the world's reserve currency holds significant benefits --- we've been living on them (some would say abusing the hell out of them) for the past 10 years.
Re my earlier post on currency exchange rates driving the price up, I did not forget the speculators. In fact I think that the speculators are seizing an opportunity to push the price up even more. Because of the "need" to raise the price of oil that I suggested in my earlier post, the speculators are able to jack up the prices even more without too much pushback from the market. That is, they are "nudging" prices that would be rising anyway (due to currency exchange issues, not due to traditional commodity supply and demand) even higher than might otherwise have been allowed by the marketplace. FWIW, this reminds me of the Hunt Brothers and the silver bubble. Back in '73 they started buying silver @ about $2/oz. As others tried to jump on the bandwagon in the late '70's, the price got pushed up to over $50/oz IIRC.
Last edited by wm; 11-20-2007 at 12:59 PM.
The weak dollar also plays a role in oil prices - probably about a 25% flux factor from what I can see. If the dollar was at its traditional levels, we'd be looking at 75$ a barrel oil, not 95.
"Speak English! said the Eaglet. "I don't know the meaning of half those long words, and what's more, I don't believe you do either!"
The Eaglet from Lewis Carroll's Alice in Wonderland
Two differing perspectives:
The invasion of the sovereign-wealth funds. The Economist, Jan 17th 2008.
In politics, appeals to fear usually sell better than those to reason. But the hypocrisy of erecting barriers to foreign investment while demanding open access to developing markets is self-evident. Host countries should not set up special regimes for sovereign wealth. Although every country has concerns about national security and financial stability, most already have safeguards for bank ownership and defence.
Until East and West even out the surpluses and deficits in their economies, sovereign-wealth funds will not go away. Ideally, the high-savings countries of the Middle East and Asia would liberalise their economies, allowing their own citizens to invest for themselves, rather than paying bureaucrats to do it for them. But do not expect miracles. In the meantime, what should be done to keep the rod of protectionism off their—and the world's—backs?
Subprime Nation, By Patrick Buchanan. RealClearPolitics, January 15, 2008
To stave off recession, the Fed appears anxious to slash interest rates another half-point, if not more. That will further weaken the dollar and raise the costs of the imports to which we have become addicted. While all this is bad news for the Republicans, it is worse news for the republic. As we save nothing, we must borrow both to pay for the imported oil and foreign manufactures upon which we have become dependent.
We are thus in the position of having to borrow from Europe to defend Europe, of having to borrow from China and Japan to defend Chinese and Japanese access to Gulf oil, and of having to borrow from Arab emirs, sultans and monarchs to make Iraq safe for democracy.
We borrow from the nations we defend so that we may continue to defend them. To question this is an unpardonable heresy called "isolationism."
And the chickens of globalism are coming home to roost.
They Rule the World: A shadowy organization is in power, and it's made up of the very, very rich. By Reviewed by Anne-Marie Slaughter. The Washington Post, May 25, 2008.
SUPERCLASS: The Global Power Elite and the World They Are Making, By David Rothkopf. Farrar Straus and Giroux. 376 pp. $26
The Madness of Ben Bernanke, By Gabor Steingart. Spiegel Online, April 14, 2008.In Superclass, Rothkopf, a former managing director of Kissinger Associates and an international trade official in the Clinton Administration, has identified roughly 6,000 individuals who have "the ability to regularly influence the lives of millions of people in multiple countries worldwide." They are the "superclass" of the 21st century, spreading across borders in an ever thickening web, with a growing allegiance, Rothkopf argues, to each other rather than to any particular nation.
.....Rothkopf harps on the Pareto principle of distribution, or the "80/20 rule," whereby 20 percent of the causes of anything are responsible for 80 percent of the consequences. That means 20 percent of the money-makers make 80 percent of the money and 20 percent of the politicians make 80 percent of the important decisions. That 20 percent belongs to the superclass.
Wake Up, America. We're Driving Toward Disaster, By James Howard Kunstler.The credit-financed consumer boom of recent years is coming to a painful end. Today's American Way of Life has no chance of surviving the coming years undamaged. The virus will continue to ravage its way through the financial system.
The property crisis is likely to spread to credit card providers soon and will then probably infect car manufacturers, furniture makers and all the other firms that owe their sales increases to the growth in credit finance. "The virus will keep on infecting the system," one management board member from a large bank said, requesting anonymity in return for the candour of his analysis.
His argument is that banks that grant mortgages to home buyers virtually unable to pay their bills are unlikely to be especially scrutinizing when it comes to lending cash to the buyers of fridges, cars and furniture. Indeed, a furniture store in Miami recently tried to lure consumers with the following offer: buy now, pay your first credit installment in three years, and no need for a down-payment.
The credit-financed way of life is typical of the US these days. Many people resort to credit to plug the gap between the lifestyle they have become accustomed to and their declining wages.
The Washington Post, May 25, 2008.
As the world passes the all-time oil production high and watches as the price of a barrel of oil busts another record, as it did last week, these systems will run into trouble. Instability in one sector will bleed into another. Shocks to the oil markets will hurt trucking, which will slow commerce and food distribution, manufacturing and the tourist industry in a chain of cascading effects. Problems in finance will squeeze any enterprise that requires capital, including oil exploration and production, as well as government spending. These systems are all interrelated. They all face a crisis. What's more, the stress induced by the failure of these systems will only increase the wishful thinking across our nation.
World Oil: World oil demand is surging as supplies approach their limits, By Paul Roberts. National Geographic, June 2008.
Many industry experts continue to argue that today's high prices are temporary, the result of technical bottlenecks, sharply rising demand from Asia, and a plummeting dollar. "People will run out of demand before they run out of oil," BP's chief economist declared at a meeting early this year. Other optimists, however, are wavering. Not only have oil prices soared to historic levels, but unlike past spikes, those prices haven't generated a surge in new output. Ordinarily, higher prices encourage oil companies to invest more in new exploration technologies and go after difficult-to-reach oil fields. The price surge that followed the Iran-Iraq war in the 1980s, for example, eventually unleashed so much new oil that markets were glutted. But for the past few years, despite a sustained rise in price, global conventional oil output has hovered around 85 million barrels a day, which happens to be just where Husseini's calculations suggested output would begin to level off.
The change is so stark that the oil industry itself has lost some of its cockiness. Last fall, after the International Energy Agency released a forecast showing global oil demand rising more than a third by 2030, to 116 million barrels a day, several oil-company executives voiced doubts that production could ever keep pace. Speaking to an industry conference in London, Christophe de Margerie, head of the French oil giant Total, flatly declared that the "optimistic case" for maximum daily output was 100 million barrels—meaning global demand could outstrip supply before 2020. And in January, Royal Dutch Shell's CEO, Jeroen van der Veer, estimated that "after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand."
Cloudy and gloomy today, huh?
................
Heck even I looked at what $5 dollar or more gas will do to society. The times they be a changing. I started collecting stories for my BLOG on what the price of fuel was doing to shipping and schools and commuters. No end of the stories resulting in behavior change. Not a lot of people tying it all together either. It isn't my area of expertise but I am really surprised how few stories linking the perfect storm of events together.................
Sam Liles
Selil Blog
Don't forget to duck Secret Squirrel
The scholarship of teaching and learning results in equal hatred from latte leftists and cappuccino conservatives.
All opinions are mine and may or may not reflect those of my employer depending on the chance it might affect funding, politics, or the setting of the sun. As such these are my opinions you can get your own.
Although the increasing costs of fuel and food are real, and are definitely having an affect upon us here at home, we also really need to look at the situation from a global perspective, and see how it the effects within the unique contexts of areas that are important to our interests.
Take Turkey as an example, and look at the significant difference in comparative average salaries and use that understanding to put into context the hard fact of fuel costs triple what it costs here in the US, throw in rising food costs and unemployment at roughly 20% - this all feeds the various social ills in what was already a developing world pressure cooker (dense concentrations of urban poor in the major cities, significant secular-religious political tension, virulent ethno-nationalism, organized crime, urban gangs and drug/human trafficking), not to mention that the radical Islamists and other assorted bad guys are recruiting. That's just one country, one context, of many.
BBC provides an overview of the impact of oil prices around the world
From today's BBC
The soaring cost of oil is causing growing strain to economies around the world, rich and poor.
With prices more than doubling in the past year to $135 a barrel, the impact is being felt acutely by consumers and businesses alike.
The risk of strikes and social unrest has become a reality in many countries as fuel becomes unaffordable for more people.
BBC reporters around the world examine the effects of the oil prices on their regions.
Last edited by Surferbeetle; 05-28-2008 at 02:43 AM.
Sapere Aude
France offers fishermen aid deal
Again from today's BBC
The fishermen's blockade began more than a week ago, and was originally confined to a few ports like La Rochelle on the west coast. But it spread until, on Wednesday, Calais, Boulogne and Dunkirk on the north coast, all serving cross-Channel ferry services to Britain, were isolated by a ring of fishing boats.
The stoppage forced UK authorities to shut the port of Dover, causing such a long build-up of lorry traffic that the M20 motorway had to be closed.
The fishermen say rapidly rising prices for diesel threaten them with bankruptcy. They are demanding a greater subsidy from the French government, in effect putting a cap on prices. But fishermen say that agreement is redundant, since fuel has become 30% more expensive since the start of the year.
Sapere Aude
I found several stories about French fisherman, European farmers, and others that won't be able to afford to harvest. Here in Indiana and the corn belt they are late to plant (wet spring) which will impact the volume produced radically. Fuel is a lynch pin in the economic circle.
Sam Liles
Selil Blog
Don't forget to duck Secret Squirrel
The scholarship of teaching and learning results in equal hatred from latte leftists and cappuccino conservatives.
All opinions are mine and may or may not reflect those of my employer depending on the chance it might affect funding, politics, or the setting of the sun. As such these are my opinions you can get your own.
Here is an interesting piece about local politics and energy costs.
LINK
Robert Rapier posed an interesting hypothetical yesterday as to how individuals would respond to gasoline at $100/gallon.
However, from my position for the last three years, the question has been “how will local government respond to large increases in energy bills?”
I am the Mayor of Huntington Beach, California, a full service city of 200,000 residents, 27 square miles, 1200 employees and 8.5 miles of beach. We have nearly 200 police vehicles, 3 helicopters, 15 fire engines/trucks, 7 ambulances, 1 HazMat vehicle, and 1 medical decontamination unit. In addition there are hundreds of miscellaneous vehicles and trucks for public works, marine safety, building department, water department, and administration. All said, we consume 495,000 gallons of gasoline/diesel/jet fuel per year. For every $1 fuel goes up, it is a half million dollars out of our general fund budget.
Perhaps more shocking than the amount of fuel our city vehicles use is how much fuel is used to pick up our residents’ trash, sort it at the transfer station, and then haul it 46 miles round trip to a dump that is running out of capacity. Prior to a recent conversion to natural gas vehicles, our contractor reported to me that they were using 525,000 gallons per year of diesel.
Sam Liles
Selil Blog
Don't forget to duck Secret Squirrel
The scholarship of teaching and learning results in equal hatred from latte leftists and cappuccino conservatives.
All opinions are mine and may or may not reflect those of my employer depending on the chance it might affect funding, politics, or the setting of the sun. As such these are my opinions you can get your own.
I wonder what impact government worker unions have on the cost of operating his fair city? The artificial inflation of government workers' wages combined with some truly unbelieveable retirement benefits HAS to make the cost of fuel into a very tiny drop in a huge bucket.
Maybe they all need to subscribe to this:
www.daveramsey.com
Cloudy and gloomy is de rigueur on sites like The Oil Drum and Life After the Oil Crash, but the links posted are mainstream media. James Howard Kunstler has been advancing such a perfect storm scenario for some time, but I have never seen him published in a publication like the The Washington Post. It is becoming more then a fringe debate.
Who's gonna work at all the fast food joints...
when the cost of a gallon of gas exceeds the hourly minimum wage?
"THIS is my boomstick!"
Will it matter? Who's going to be able to afford to go through the drive through windows?
Vir prudens non contra ventum mingit
The greatest educational dogma is also its greatest fallacy: the belief that what must be learned can necessarily be taught. — Sydney J. Harris
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