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Crude Oil Price Spike 30 July

From the Associated Press via "B4 The Bell," 18 August 2004

The Allawi government delivered a surrender ultimatum to the Mehdi Army of Moqtar al-Sadr.

The Mehdi Army has delivered its reply.

They burned the HQ of Southern Oil Company to the ground.

Militants blasted pipelines at multiple locations in the vicinity of Basra and Al Amara.

They set several oil wells ablaze in the same vicinity.

The Mehdi Army is promising more oil infrastructure attacks soon.
 
Once during a lull in training a colleague told me that my interest in Sustainability, renewable energy and so on was pointless and irrelevant in a military context. I had no answer at the time.

These days I beg to differ. We are left in a position where we have to HAVE oil. Can anyone spot where this might conatrain us policy wise?
 
Here's a cause of the recent spike: panic crude buying by hedge funds covering their "short" positions.

In conventional speculation, you buy what's cheap in the expectation of selling it at a profit when the price rises.

Short selling is the pursuit of a speculative profit on an anticipated decline, instead of a rise.

You "borrow" the object of the short sale and sell it into the open market. The sales proceeds are held in escrow until you "cover" the "short" by purchasing in the open market to repay the loan.

If you bet right, you cover at a price that's lower than your sale price and you pocket the difference as your profit.

But if you bet wrong, as the price rises, you go deeper into the hole.

Which is what happened to the firm of Traxis Partners when it recently made a large and costly that crude prices would go down. When the exact opposite happened, they had to buy into a rising market to cover.

This company has $2 billion in assets under management. It is down seven percent for the year, mostly due to improvident crude oil speculation.

"Contrary Bet On Oil Is Costly To Year-Old Hedge Funds" by Riva D. Atlas
http://www.nytimes.com/2004/08/20/business/20hedge.html

Panic buying by "squeezed" shorts is a temporary, self-limiting phenomenon.

Barring some fresh fiasco in the middle east, I'd be looking for a temporary decline in crude prices.

This is not investment advice and I have no crystal ball.
 
Rising crude prices inevitably mean rising motor fuel prices.

UK commercial haulers are feeling squeezed and demanding a reduction in fuel excise taxes which, it is stated, are higher in the UK than on the Continent.

They are intimating that if they don't get relief, they'll start blocking traffic.

On the other hand, "environmental campaigners" are contending that the government must raise taxes still higher to discourage people from driving.

"Warning Of Blockades Across UK As Petrol Prices Rise" by Nicholas Christian
http://news.scotsman.com/uk.cfm?id=981272004
 
Does anbody get the feeling that all the things that we have been doing in the Gulf for the past two years (tips hat to Gulf War 1 as well) will be viewed as petty little squabbles compared to the oil wars that we are likely to see in the future.

How many horses does it take to pull a main battle tank? not that we will have any by then.

I think i'll invest in suncream stock I have a feeling i'm going to need it!
 
Crude prices have fallen this week. Spot light sweet now at $43.23.

I'm not sure why. However, the New York Mercantile Exchange raised margin requirements for speculators who aspire to buy it with borrowed funds. ("Margin" is the proportion of the contract price the exchange will permit to be purchased with borrowed funds.) I could guess that this may have had the effect of shifting speculative interest to other commodities allowing trading on a thinner margin.

Speculation has been rampant that the US administration would tap the Strategic Petroleum Reserve, claimed now to hold 666 million barrels, to bring down the price further. V-P Cheney recently announced that it would take an emergency to move the administration to take this step.

However, both Presidents Clinton and George H. W. Bush opened the SPR when they thought it expedient.

From the Associated Press, here's a novel man-bites-dog story. OPEC says it wants prices to fall further still:

"JAKARTA, Indonesia - The Organization of Petroleum Exporting Countries wants oil prices that traded near $50 a barrel last week before retreating this week to fall faster, and will discuss whethr to increase production at a meeting next month, the group's president said Thursday.

"'Oil prices have retreated, but we want them to fall around $30 per barrel,' Purnomo Yusgiantoro told reporters. 'That would be good enough.'"

"OPEC Wants To See Oil Prices Fall Faster," 26 August 2004
http://www.thestate.com/mld/thestate/business/9502734.htm
 
Not_Whistlin_Dixie said:
Supply is half the story. The other half is demand. From what I read, China is bidding it up along with steel, cement, lumber, merchant shipping rates, etc.

Oh Aye, mate of mine in jockland building prefab steel unit to set up carpentry business has seen the price of steel go up 15% in 6 months...

STEEL!!

Ben
 
The Sunday Times
September 19, 2004

Just think ... if we didn't need oil there wouldn't be a problem
by Sarah Baxter
Neo-cons are getting the green message: alternative fuels can win the long war

An extraordinary marriage is on the cards in the United States; the Greens and the neo-conservative right are jumping into bed with each other. The issue that is bringing these political foes together is oil. Both say it is urgent for economies to end their dependence on the Middle East’s cash crop.
They come to the debate from different directions. The Greens’ arguments — global warming and so on — you already know. But you may not be familiar with the neo-cons’ concern. Giving up oil, they say, is the best long-term weapon in the war on terror.

Listen to the words of the Institute for the Analysis of Global Security, a hawkish think tank in Washington: “Our energy demand is financing terror,” its mission statement says baldly. “We believe that a shift from oil is the best guarantor of global security, prosperity and freedom.”

Last week the right-wing Hudson Institute in Washington held a seminar on Saudi Arabia. The star speaker was Bernard Lewis, the most renowned scholar of Islam in the West and darling of the neo-cons.

Lewis, who was born in Britain but is now based at Princeton, spoke about the rapidly expanding Muslim populations in Europe and elsewhere and how they are being converted to the most noxious form of Islamic fundamentalism, spread by the Saudis.

The discovery of oil has given the Saudis wealth and power beyond their wildest dreams, enabling them to take advantage of the natural desire of Muslims in the West to teach their children about their religious heritage. As a result of their stranglehold on learning, the rantings of Wahhabism were becoming the “dominant form of Islam”.

Lewis concluded that the Saudis had to be sent back to their impoverished former life in the desert. “There is only one solution and that is to find another source of energy besides oil. It seems to me to be the only way we can put an end to this poison which fouls the sea and the roads and pollutes minds.”

The audience was startled. But other rightwingers went on to echo Lewis’s concerns. David Pryce-Jones, a Briton who writes on Arab affairs for National Review magazine, opened his talk with a warning from the Nobel prize-winning novelist Sir VS Naipaul.

“You must make it plain to people,” Naipaul had urged him that morning, “that they face a choice between saying it’s more convenient for the sake of oil to keep the Saudis going and taking a stand against them. If they hesitate to make that choice, they are gambling with civilisation.”

Pryce-Jones pointed out that western experts knew little about the internal workings of Saudi Arabia. Talk about this prince being a reformer and that prince being a hardliner was pure guesswork, similar to the Kremlinology of the cold war. While the royal family had granted a few sops to the West — some limited municipal elections will take place next year — pro-democracy activists were still being thrown in jail.

In any case there was no Saudi “Sakharov” figure: if free elections were held tomorrow 40% of the population would probably support Osama Bin Laden, putting a damper on the desirability of regime change.

Now, as everybody knows, oil is a finite resource that will eventually run out. It makes sense on that basis alone to explore alternative sources of energy. The problem is that scientific research takes time. So does changing consumers’ gas-guzzling habits.

Lewis believes that with the right government incentives it could take us 25 years to give up oil. If we are to rely on the private sector alone, 75 years is more realistic.

Meanwhile, over at the Institute for the Analysis of Global Security, its founder Gal Luft, who served as a lieutenant colonel in the Israeli army, spells out his concern that most of the world’s oil is produced by unstable Middle Eastern regimes that could blow up at any moment.

“We stay away from environmental debates,” says Luft dismissively. “We think the issue is very urgent because of the national security aspect.”

Luft is reluctant to ask Americans to adopt a hair shirt. “The solutions we advocate do not require any compromise of the American way of life. Alternative fuels can power large cars such as SUVs (four-wheel drives). According to Luft, consumers should already be looking to buy hybrid electric cars, which can increase fuel efficiency by 30-40%.
“Everything we’re arguing for is already beyond the research and development stage. It’s a question of allocating the right government incentives,” says Luft. “Every new car should have a mandatory flexible fuel capacity.”

Nobody doubts that hydrogen-powered fuel cell vehicles are the cars of the future, supported by alternative fuels such as ethanol (from corn) and methanol (from coal or natural gas).

Americans might be persuaded to drop their love affair with oil, as long as it is not just the loopy left telling them to give it up. Of course the present incumbents of the White House, two former oilmen named George Bush and Dick Cheney, remain obstacles to change. But at least their friends are beginning to desert them on this one.

I asked Lewis whether, as a guru of the right, he could yet become a hero of the Greens. “It’s a new thought,” he chuckled, evidently pleased.

Thoughts?
 
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