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Prices - May 12

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As U.S. politicians search for a solution to high oil prices, answers evade them

Jad Mouawad, International Herald Tribune
... But what can the White House, Congress or competing presidential candidates do to reduce gas prices in the near term? The short answer, alas, is not much.

No industrialized economy is as reliant on oil, or as obsessed with gasoline prices, as the United States, the biggest consumer of oil in the world. But the oil market is largely immune to Washington's machinations, and prices have more than quadrupled over the last six years for reasons that are increasingly disconnected from what happens in the United States.

The reality is that oil is a globally traded commodity, and Americans must pay international prices to get their share. And those prices reflect the fact that global supplies are stretched and struggling to meet a booming demand that is being driven by growth in developing countries, notably China and India. This has left the world with a very slim cushion of extra production.

"Gasoline prices have reached the boiling point in political terms," said Daniel Yergin, chairman of Cambridge Energy Research Associates, a consulting firm. "But you have to look at the root causes of this. Spare capacity is very tight. And a very tight market is very vulnerable to crises."

... In the long term, there are only two ways to reduce prices: increase supplies or reduce demand. The country's energy policy does exactly the opposite: it encourages consumption by keeping energy taxes low and discourages exploiting new supplies because of environmental concerns and not-in-my-backyard political objections.
(11 May 2008)


A Peek Behind the Price at the Pump

Nelson D. Schwartz, New York Times
... a harder-to-control factor is emerging as a main reason behind the increase in energy costs: the sinking dollar.

While no one disputes that China and other emerging economies are craving more crude, the stunning rise of oil from $62 a year ago is hard to explain as only a matter of supply and demand. After all, analysts have noted adequate inventories.

Over the same period, the dollar has declined nearly 15 percent against the euro, and the jump in oil prices “is very much driven by the dollar,” says Roger Diwan, a managing director at PFC Energy, a consulting firm in Washington.
(11 May 2008)


Mystery Indian analyst spooks world economy

Chidanand Rajghatta, TNN, The Times of India
They are calling him Arjun "Spike" Murti, but his real middle name is Narayana, the supreme manifestation of the Hindu God Vishnu.

Supreme he is, in the oil world. The little known Indian analyst at Goldman Sachs has become a cause célèbre -- or a doomsday prophet -- for his forecasts about oil prices, based on what he calls the "super-spike" theory, predicated on rising demand for crude and limitations in refining capacity.

Murti, 38, now a managing director at Goldman Sachs, first came to the fore as far back as 2003-2004 when he predicted that oil prices would breach $ 80 a barrel when it was still in the 30s. He was sneered at. He was mocked again when he predicted in 2005 that it would double from $ 50 to $ 100 before the end of the decade.

Last month, when he forecast that a barrel of oil could even touch $ 200, no one was laughing as it surged to $ 125 on Friday.
(10 May 2008)

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