Articles tagged with "$200 oil"
It's been a while since I did a Countdown diary - no wonder, given that oil is now below $60, ie at the same level as when I started the initial "Countdown to $100 oil" series back in 2005...
While the $200 target looks to be some ways off right now, given the expectations of a massive global downturn, the mechanism that has been pushing prices down is the same one that had been pushing prices up in the first part of the year. As I explained in this recent opus of the series: it's the marginal cost of demand destruction that matters, rather than the marginal cost of production. Demand was driving prices up when it was strong, and it is now driving prices down just as brutally by crumbling just as spectacularly (whether directly, finally, because of high prices, or indirectly via the economic crunch).
But we now, unexpectedly, have a strong "buy" signal again: an article by CERA's Daniel Yergin telling us that current prices are justified.
I have been gently chided on the internets for not doing any Countdown diaries since the oil prices have started going down. While the giddiness and glee demonstrated by many in the traditional media and elsewhere invites little but ridicule, as demonstrated by this graph below, prepared for the Oil Drum, some serious questions have been raised and deserve answers.
So, beyond the semi-glib answer that nothing much has in fact happened in the oil markets in the past month (after all, the recent decline is still smaller, in percentage terms, than several others in the past couple of years), here are a few points worth making.
An installment of the Countdown to $200 oil series
It is oddly fitting that we touched $100 oil on 31 December and got halfway from $100 to $200 oil on 30 June - so we're on track to reach $200 oil by 31 December this year (in case you're wondering: +42% and again +42% from that level = +100% from the initial level).
It is also fitting that on that same date, the International Energy Agency published one of its gloomiest ever analyses of the oil markets, asserting that oil prices are justified by fundamentals
Opus 9 of the Countdown to $200 oil series.
It said: “Like alchemists looking for a way to turn basic elements into gold, everyone wants a simplistic explanation for high prices,” bluntly adding: “Often it is a case of political expediency to find a scapegoat for higher prices rather than undertake serious analysis or perhaps confront difficult decisions.”
|As you may have heard, oil prices have reached a new high above $140. I can already hear the outcry against speculators and their out-of-control games to enrich themselves at our expense.|
Never mind that speculators have been caught shortselling oil (ie betting on a fall in prices) more than a few times in recent months. Never mind that spot oil prices, which require actual physical deliveries of oil at the end of each month, have behaved the same way as paper futures. Never mind that oil storage seems to not be increasing.
Nope, it is just too convenient, too irresistible and, let's say it, too comfortable an excuse that speculators are to blame. It's not our fault, we have our scapegoat. Our price increases are temporary, we'll soon be back to "normal" lower prices, as soon as (take your pick) speculators have been punished/oil companies are taxed for their profiteering/"fundamentals" are left to set prices.
This is just denial.
There are A LOT of good reasons why oil prices are going up. Let me show you just a few.
A Countdown to $200 oil diary
One of the more interesting things about this Friday's economic news was the very obvious connection between the unemployment number and oil prices. What links the two is debt, the defining feature of what I have called the Anglo Disease, ie the highly unequal economy whereby the rich and the financial sector (almost the same thing these days) capture most of the income but hide it by providing cheap debt to the middle classes so that they can continue to spend.
Oil has played a fascinating side role in my Anglo Disease series, allowing the debt bubble to go on for much longer than expected. But now, instead, it is accelerating the crash. Let me take you through the whole cycle.
As in previous years, I got my ass whipped in my latest attempt to suggest on Daily Kos that gas taxes should be increased, despite the fact that the place is completly dominated by Obama fans and Obama's solid stance against the gas-tax holiday.. Some commenters kindly called me a "rich elitist f*ck from Europe" (guilty on all counts, of course) for wanting to bankrupt poor Americans who cannot do without gasoline, preferably cheap, and are already struggling mightily.....