Monday, March 7, 2011

Really, Oil Prices? Really?

You may have heard that there's a little trouble in Libya these days.  Seems a large proportion of the citizens have decided that 41 years is long enough to pretend your leader isn't a steaming pile of crazy.  Plus, they're tired of listening to him read out of his stupid green book.

I don't speak Arabic, but that's how it sounded to me.
Gaddafi, having exhausted the supply of Libyan soldiers willing to massacre their own countrymen, has been bringing in mercenaries from all over Africa to do the job.  The Libyan opposition is fighting back with everything they have (topping the list:  incredible tenacity and bravery, followed by mostly WWII-era weaponry and rocks).

The upshot of all this is that the conflict shows no signs of ending soon.  The natural consequence is that crude oil futures have shot up like Charlie Sheen's pecker in a houseful of porn stars.

Stop.  Just stop.  Stop thinking about that simile for a minute and focus on these stupid oil futures. Talk about mercenaries; those bloodthirsty bastards mowing down peaceful protesters in Tripoli have nothing on the douchebags that control world oil prices.

Close your eyes and think about democracy.
Trading on the commodities exchange is a complicated and sophisticated affair.  I can't pretend to comprehend all the factors that go into the buying and selling of futures.  From what I do understand, however, it involves dwarfs on unicorns throwing twelve-sided dice and werewolves specially trained to scent the sweat of millionaires.

The result is that oil prices (as well as other commodities like gold, cotton, and good weed) don't follow normal economic rules of supply and demand.  Oh, sure, prices rise as demand rises, and fall when supplies are high.  But they also rise when someone (like that guy in the suit up there) decides that prices should go up because people should be afraid that something bad should happen any minute now, based on intensive market analysis and also a Magic 8 Ball.

So the commodity traders have noticed that there's instability in Libya right now.  And, hey, Libya has oil!  And oil production in Libya is being disrupted by the fighting, because there's no one to operate the oil wells because they're too busy being shot at.  This could be bad, think the traders.  This could cause the price of oil to skyrocket if the fighting stretches out indefinitely, if Gaddafi decides to cut off the world from his oil, and if no other country steps up production to replace the lost volume. 

If all those things happen, think the commodity traders, the price of oil could easily rise from $82 a barrel (where it was around Thanksgiving) to $105 (where it's trading this morning).  And boom - almost if they controlled the price of oil with nothing but their minds - that's exactly what's happened.

But wait.  What if we relied on minds with something in them?  Then we might catch a glimpse of what are called (by people outside of the financial sector) hard facts.  Like, for example...

...when it's not busy slaughtering its own people, Libya produces about 1.7 million barrels of oil a day.  That's a lot of oil.  Except that a bunch of other countries (11, to be exact) produce a hell of a lot more.  Norway pumps more oil than Libya.  So do Canada and Mexico, and those guys love us, right?  The good old U. S. of A. produces better than four times Libya's output, every damn day.  And then there's Saudi Arabia, which pounds out 11 million barrels per day and has pledged to increase production to cover any shortfall from Libya.  Because they really, really like being rich.

Can they do that?  Well, let's see, it's estimated that world oil production could be dropping by as much as a million barrels a day during the Libyan conflict.  Total daily world production is somewhere north of 80 million barrels.  That's, uh, let's see...with a remainder of...God, I hate math.  Anyway, using those conservative figures, that comes to a 1.25% decline in supply.  Saudi Arabia keeps that much oil on hand just to lube their racing camels. 

Camel racing is a real thing. 
Camel lube jobs, not so much.
 Speaking of supply, it's not as if Gaddafi's precious oil is exactly critical at the moment.  World oil reserves have been steady to creeping upward for at least 18 months now and in fact rose a half-percent in January.  Apparently there's been a recession or something, and consumption has been constrained by all those people who can't afford and/or are living out of their cars.

So let's review.  Supply:  Good.  Demand:  Flat.  Disruption:  Minimal.  Saudi Arabia:  Rubbing its hands together in anticipation of higher exports. 

Price of oil:  Up nearly 20% in the last 60 days.  Price of gasoline:  Up 34 cents in the last two weeks.

Far be it from me to suggest that the commodity market is full of greedy fearmongers who place their own short-term profitability above the forces of economics, logic, and sanity.  Or that speculators may be tearing apart the economic recovery with the same gusto with which they manufactured the economic crisis a few years ago.  Or that they may be fueling Gaddafi's and other Middle Eastern rulers' inflated sense of power, against which their respective peoples are rebelling in the first place. 

I just want democracy to succeed, and gas to be less than $3 a gallon.  But I guess I'm just selfish and short-sighted that way.

No comments:

Post a Comment

You're thinking it, you may as well type it. The only comments you'll regret are the ones you don't leave. Also, replies to threads make puppies grow big and strong.