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Crude (manipulating the price of oil)
Jed Morey, Artvoice
Or, How Wall Street investment banks manipulated oil prices to try to save their hides, screwing American consumers and the rest of the world and breaking the economy anyway
To John Mack, it must seem like just yesterday that he received a $40 million bonus as chairman and CEO of Morgan Stanley, the largest bonus ever given on Wall Street at the time. That was at the end of 2006, a lifetime ago in the financial world, and things are much different now. Continued fallout from the credit crisis has forced Morgan into a corner and its chairman against a wall. It could be worse. Mack could have run Merrill Lynch, Lehman Brothers, or Bear Stearns.
Luckily, Mack is an oil man, in every sense of the word. Under Mack, Morgan Stanley has amassed a formidable group of companies involved in every aspect of the petroleum business, from refineries to home heating oil.
By exploiting regulatory loopholes and throwing caution and conscience to the wind, Morgan Stanley, along with Goldman Sachs, has artificially thrust oil prices to record levels. Mack has thus far been able to navigate through a storm that has brought three of the biggest American investment banks to their knees. And the whole world picked up the tab.
They don’t call him “Mack the Knife” for nothing.
There will be blood
One of the greatest economic disasters in modern history is unfolding before our eyes, but the runup spans 16 years and three presidents and has left millions of starving and poverty-stricken people in its wake.
Economists and theorists have already named the economic period that is ending as of this writing: It was the era of cheap oil, a time when multinational companies thrived on the global market as never before. Things have changed now: Oil prices are high and the cost of doing business, in every industry, continues to rise. Oil may never be cheap again; answers and inconsistencies abound as to why.
… However, there are some theorists who still vehemently deny that this is the case.
James Howard Kunstler, author of The Long Emergency and creator of the popular blog Clusterfuck Nation, believes that the effect from the speculative market is “basically witch-hunt stuff.” A peak oil theorist, Kunstler, on the phone from his home in Saratoga Springs, says he believes that the root of the problem lies in our global dependence upon a commodity that is quite simply disappearing.
This story was originally published by Long Island Press and made available through the Association of Alternative Newsweeklies.
(1 October 2008)
Long article.
BP: ‘We should see volatility increase’
EurActiv
Tight global fossil fuel markets, increased nationalisation of oil reserves and massive economic growth in developing countries like China and India are creating new realities in global energy markets, which will remain volatile for some time to come, according to BP’s chief economist Christof Rühl, who spoke to EurActiv in an interview.
Q: Energy markets are changing rapidly and we are in a situation of high demand and high oil prices. How would you position this year’s statistical review in this context? Is it very different from previous reviews?
A: This review is different in two ways. First, it works out the long-term drivers that have pushed up oil prices and energy prices over the last two years. Since 2003, oil prices have increased 300%, traded coal by 200% and natural gas by 100%. These are enormous magnitudes.
At the same time, the report distinguishes between short-term volatility and long-term developments. If you look at the last few months, you have seen oil prices come down as quickly as they have gone up in reaction to these short-term market disturbances.
We should expect this to continue. The basic story of this report is that prices will be stronger for longer, because they are driven by new players in economic growth and by really drastic changes in the composition of economic growth, with more participation from so-called emerging or developing economies that have much higher energy needs because of industrialisation.
And at the same time, there are constraints on the supply side – either because access is restricted like in oil markets or because trading isn’t fully developed like in coal markets. As long as there is no global economic recession and growth remains relatively strong, this mixture will be the background.
But energy markets in general, and oil markets in particular, are strange. Like any complex system they need a degree of redundancy. But the oil market, for example, has only two million barrels of spare capacity at the moment and operates at almost full capacity. So every little interruption causes these violent reactions, and we should see volatility increase in the short term, because the market is dominated by a cartel and because the cartel has the only free spare capacity, we should also expect this to be possibly downwards.
Saudi Arabia, for example, in response to the economic situation has increased production, and oil prices are coming under severe pressure. More oil on the market together with a crash in demand means we will also see prolonged periods of low oil prices.
(1 October 2008)
The Upside To Global Energy Scarcity
Knowledge@Wharton (The Wharton School) via Forbes
Rising energy demand from China and India has unleashed a worldwide race to secure access to scarce fossil fuel resources, a more difficult proposition with the emergence of national oil companies in the resource-owning countries.
While Western companies will likely feel the pain of increasing energy costs, there is a potential upside to global energy scarcity, according to experts from Wharton and the Boston Consulting Group: Renewable and nuclear energy present huge opportunities for investors and entrepreneurs, underscored by concern over a global stalemate surrounding curbs on carbon-dioxide emissions.
The International Energy Agency (IEA), an autonomous body set up within the framework of the Organization for Economic Cooperation and Development, says in its November 2007 World Energy Outlook that, “If governments around the world stick with current policies, the world’s energy needs would be well over 50% higher in 2030 than today.”
(1 October 2008)
Global crude oil prices and the GCC
Arab Times (Kuwait)
THE following is a special report prepared by Citi group on global oil prices and the role of [the Gulf Cooperation Council (GCC)] in maintaning it. The report affirms that it is the underlying fundamentals, not speculation driving oil prices. Hence, GCC may no longer be able to play the key role in rectifying the global imbalance.
Following are the key highlights of the report:
- With constrained supply and growing demand, the exportable surplus from the GCC has fallen for the first time – this appears to be unavoidable, rather than intentional
- Record oil prices are no longer driving GCC growth, but GCC growth may be driving up oil prices
- Non-OPEC suppliers are important, but all attention is on Saudi Arabia, which has played the role of swing producer. In our view, flat production capacity, despite rising oil reserves, is the root cause of the current problem.
- To stabilize the market and counter speculation that the region is near its peak production, we believe the GCC should invest in production capacity and be more transparent about its oil sector
… Since China and the Middle East are driving oil consumption, the only way to ease global demand is for sufficient demand destruction in the OECD. Furthermore, with oil production almost at full capacity in OPEC – and Saudi being forced to use up its spare capacity – possible supply shocks (Nigeria, Iran-Israel) are likely to have an exaggerated impact on oil prices. Also, insufficient investment in oil production and the absence of large oil discoveries in the GCC point to only modest supply increases.
Looking specifically at the GCC, we see constrained production, but little to ease growing demand. Rising oil prices will continue to drive these economies, while subsidized fuel will add to domestic demand for oil. As we have shown, 2007 was the first year that the exportable surplus of oil fell in the GCC. We expect this to fall further as member countries first satisfy domestic demand – oil consumption in the GCC has been growing at about 7.4% per annum since 2003. With a shortage of gas in the region, domestic demand for oil will continue eating into the exportable surplus.
In terms of a longer-term outlook, expectations that supply must increase from the GCC are not misplaced.
(1 October 2008)
