ALT-1 What Lies Ahead when Giving Thought to the Expense of Oil
The madness that black gold evokes is well documented in Upton Sinclair's Oil! and it's loose film adaptation, There Will Be Blood. More popularly, television's The Beverly Hillbillies, is a fantasy of the madness surrounding oil money from the point of view of people too simple see it. What oil means to us is never far from our imagination: money, power, freedom but ultimately, dependance on a single commodity that the world has never witnessed before.
By Wednesday of this week, the inevitable happened. Oil prices, so volatile over the last few years, hit a record high, trading at $101.32 a barrel. At closing, the price was $100.74. Oil broke the $100 dollar a barrel mark earlier this year, in response to the 27 December 2007 assassination of Benazir Bhutto in Pakistan. Then fear then being that her assassination, like that of Archduke Franz Ferdinand in 1914, had struck the tender that would engulf the world in war. That didn't happen and prices retreated quickly because, in the words of a Pakistani associate of mine "Pakistan doesn't matter."
So what happened on Tuesday to send oil beyond the breakers? On Monday, and explosion at Alon USA's Big Spring refinery, interrupted supplies, OPEC has been grousing at cutting production, Venezuela's Hugo Chavez has been grousing about cutting the US off from oil in favor of a Pan-South America arrangement, and the Niger delta is again alight with violence.
With the exemption of the Big Spring explosion, the reasons above are developing factors that have been on the radar for some time. They are always fighting in Nigeria, OPEC has been considering a production cut for some time, and Hugo Chavez, much to the chagrin of Spain's King Juan Carlos, simply won't "shut up." In the global market, the Big Springs refinery, like Pakistan, doesn't matter.
So what was it? Ask the experts and Mark Lewis of Energy Market Consultants puts the enigma simply: "It's the fundamental's, Stupid." By that he means that basket of factors that affect the supply of, and demand for, oil. If you'll recall you first economics textbook, all you need to know is encapsulated in that one Supply & Demand graph. Mr. Lewis goes on to say, "We really don't know what the fundamentals are doing at any point in time."
Hardly a consolation in a world so dependent on the availability of oil at cheap prices. High prices bring recession, cheap oil makes business more profitable and people more mobile. There are real fundamentals: increasing demand from China and India, fears that the US and Iran will nuke the oil producing regions into a sheet of glass, and America's proven habit of paying what ever price is demanded at the pump.Because oil wreaks so much havoc beyond the machines it fuels, people and markets tend to over egg the pudding when it comes to reckoning the price of oil. Most of the geopolitical events that spike prices, turn out not to affect supply and demand at all. Market prices are reckoned on cocktails of news, hype, speculation and rumor. If all agree that the price must go up, however painful, then so it shall.
If you really wanted to find a book or movie that encapsulates our fears of one all-powerful commodity, then you could do worse than Frank Herbert's Dune. That science fiction classic of prophets, politics, the spice on which the galaxy runs, and desert in the center of it all.
