Tuesday, April 19, 2011

Monkey-Butt Economics 101

Let me just say this:

I told you so!

The Dance of the Righteous
On Monday, a spokesman for OPEC said what I've been saying since the beginning of March - that there is no shortage of crude oil and that the current price of oil is overvalued by $15 to $20 a barrel.  Booyah!

Also, it's cheesy animated .gif day!
In a related statement, the Executive Director of the International Energy Agency (motto: "It's IEA, Not IKEA, and No, We Don't Have That Sofa in Blue") said that the global economy is being hurt by high oil prices.  Also, puppies are cute and Justin Bieber is popular among little girls.

Here's the poop, pretty much exactly as I've been saying all along:  The conflict in Libya caused a negligible drop in worldwide oil production.  OPEC is committed to maintaining a steady supply of crude oil, basically by pulling out the spare half-million barrels it keeps in the garage.  At the same time, demand remains flat because the global economy refuses to pull its head out of the toilet, while Japan, the world's third largest economy, is dealing with the aftermath of a huge earthquake and tsunami that damaged a number of oil refineries, not to mention destroying ports at which imported crude oil normally would enter the country.

Meanwhile, although protests continue in Libya, Syria, and other Middle Eastern nations, they haven't turned into the widespread full-scale uprisings that some experts thought would de-stabilize the region and produce major supply disruptions.  And to reiterate, Saudi Arabia likes money.  "Here," they say, "take these millions and millions of barrels of nasty, sticky crude oil and give us money.  You're happy, we're happy, everybody is happy."

Yet prices keep going up, about 30 bucks a barrel in the last six months.  That's almost a 40% increase in the price of a commodity that has experienced no supply disruptions, no demand spikes, and no significant external (i.e., political) pressure.  What the everlovin' freak?

Here's the thing:  Libya produces a type of refined oil that is widely used in Europe.  It's a fairly propietary blend, as these things go, and the parts of the world that import it are partial to it.  Think about asking a Starbucks snob to willingly forego his favorite Fair Trade Organic Baboon's Arse Special Roast - same type of allegiance. 

Now imagine that the baboons have decided to rebel against their Baboon Dictator, and as a result, they're not pooping out the beans they way they used to, because they're busy getting shot.  Naturally, the price of the Baboon's Arse Special Roast is going to go up.  But let's say that Wal-Mart, which sells way more coffee than Starbucks to begin with, announces it's whipped up its own version of the baboon coffee.  It's pooped out by macaques, and it's not exactly the same, of course.  But it's perfectly serviceable and an acceptable substitute, especially if the alternative is paying $109 a pound for the real thing. 

And then imagine that the Starbucks snobs give the matter careful consideration, weighing the economic and social implications of adopting the substitute baboon-butt beans.  And decide to hoard, hedge, and subsequently inflate the price of their precious coffee while ignoring the widely available Wal-Mart blend, which results in driving up the price on all coffee across the board.

Kiss it hard, less-enlightened consumers of scarce goods.
It's kind of like that.

The good news is, OPEC's announcement caused crude prices to back off a bit yesterday.  Maybe that will continue, or maybe the oil traders will spit out Saudi Arabia's oil into a potted plant when no one is looking and go back to their buggery.  I mean thuggery.  Or maybe I do mean buggery.

Unfortunately, being right serves my pathetic need for validation, but it doesn't bring relief at the gas pump.  So I'll keep watching the news, following the commodities market, and filling up my tank halfway.  Maybe the baboons will decide to let prices resume a natural arc based on actual market conditions.  And maybe those same baboons will fly out of my butt like so many organic coffee beans.

In meantime I'll put my money on cheesy animated .gifs.  I think these things might really take off on the Intertubes some day.

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