Jun 232008

Nothing much in the news today, so it’s back to banging on about the price of petrol

Actually, not exactly the price of petrol. More accurately the futility of travel half-way across the world by an Australian government minister and entourage, at tax payer expense, to listen to the head of the Organisation of Petroleum Exporting Countries speak the truth about skyrocketing oil prices. That truth? That "the 13-nation body that controls 85 per cent of the world’s oil, believed that the market was in equilibrium." True, that body has to be one of a few parties – a minority to be sure – that are making an absolute motsa from the exponentially snowballing oil price, but consider this. Who else knows better whether supply and demand are in equilibrium? If OPEC were really interested in artificially boosting the price of crude oil, why would it claim that supply isn’t being outpaced by demand? Surely all OPEC needs to do in order to boost the price is withhold supply, not increase it. It worked in the seventies, why wouldn’t it work now?

Why do we read the Algerian oil minister claiming:

"It is not a problem of supply. Why would you have a supply problem when demand is going down?"

King Abdullah of Saudi Arabia blaming:

"the abhorrent acts of speculators seeking to undermine the market"

The Qatari energy minister stating that "the world oil market was well-supplied and there was no need to raise output"?

We know that in developing nations, the price of fuel is subsidised, encouraging greater consumption….. or development. Are these terms interchangeable? So much for ‘parity’ but that’s a separate issue. The bottom line is that with the price of fuel in developed nations out-stripping the ability of those economies to cope, demand is falling off. Evidence the cutting of airline schedules across the globe by operators desperate to stay alive financially. That’s demand decreasing, not increasing. Statistics released recently reveal that the US population has travelled fewer car miles to March this year than any other year since recording such stats began in 1979. Obscure? Bear in mind that the US is the most car-numerous, fuel-profligate nation on the planet.

I’m interested to read that while the US energy secretary claimed that no evidence of speculators in that country’s financial markets driving price hikes appears to exist, both the US and UK along with Australia were keen to focus on this esoteric ‘supply and demand’ cause, rather than accepting that just maybe that avenue deserves a closer inspection. Just what does the claim from the US secretary – "Fundamentally tight market conditions in our view are the major driver of the dramatic price increases." – mean? Does it mean, "You might be right about derivative speculation, but please don’t look at us, we’re in a recession" ? As for Martin Ferguson …. the man wouldn’t know bee from bull’s foot about commodity market functionality. He’s merely parroting what he’s been told to squawk about.

There is no issue of demand far out-stripping supply. Not sufficient to justify a 23% rise in the price of fuel in 12 months. If demand was greater than supply, why are airlines and transport operators going broke? Doesn’t that mean less aircraft flying, less trucks on the road, fewer fishing vessels able to put to sea? Fewer internal combustion engines running must mean there’s less fuel being burned, so where’s the demand?

It’s bullshit and I’m calling it.

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