Yesterday Saudi Arabia hosted a forum of major crude producers to discuss production levels and the high price of oil that the American consumer is all too familiar with. The US Secretary of Energy, Sec. Bodman, remarked at the forum that energy prices are being driven by supply and demand – that the high cost of crude can be attributed to increased worldwide consumption and alleviated by increased production. Despite consistent statements by the Saudi oil minister, Ali al-Naimi, the Saudis agreed to increase July’s production levels and continue to increase production as needed.
Crude prices are remaining strong today – many observers are now pointing at attacks in Nigeria that have shut-in more crude than the promised Saudi production increase will deliver. But these attacks don’t explain how we’ve arrived at $135/b oil. Nor can supply and demand – market fundamentals – as Sec. Bodman pointed to yesterday adequately explain the near doubling of crude prices in less than a year. Likewise there have not been significant fundamental changes to the overall security picture that can account for the precipitous rise in crude prices in the last year. While all these factors have certainly contributed to the rising cost of crude, most notably in the increase from $35/b to the $70-75/b range, an additional factor has been driving the cost of oil for at least the last twelve months. That factor is speculation.
It is important to understand how speculation occurs and how it can influence price structures. I think often people are left with the impression that an oil company, say BP, owns oil fields, tankers, refineries and gas stations and is itself responsible for extracting the oil from the ground, moving it onto a tanker, shipping it to a refinery and turning it into gasoline. This leads people to believe that oil companies are fixing prices. Other times people believe that OPEC is responsible for all the oil in the world and can arbitrarily cut supply to increase price – this leads people to blame Saudi Arabia for high crude costs. The market, unfortunately, is much more complicated than either of those scenarios.
Basically, oil can be purchased as a future contract in 1000 barrel units with a particular delivery date, like July 1. These contracts are offered by the owners of the oil when it is extracted, owners like Saudi Aramco or BP or Iraqi National Petroleum Company or Big John’s Mom & Pop Crude. Futures are intended to be bought by refineries so that there is some stability in price between the time it is removed from the ground and the time - weeks later - when it arrives at a refinery to be converted into gasoline. These futures, however, can be purchased and resold by anyone. When a market is tight, as the oil market has been for the last several years, futures being purchased by outside entities that believe they can buy a future today only to sell it for a profit tomorrow artificially inflate demand and drive price up. These futures are subsequently sold to refineries at a price level that does not reflect the commodity’s fundamentals but that yields a profit to the intermediary. Given a sufficient amount of money and number of non-refining entities purchasing and selling futures contracts, this speculation can become the driving force behind price formation.
Welcome to the petroleum bubble. It’ll burst eventually, but it’ll take more than additional Arabian Heavy to pop it.
Monday, June 23, 2008
Friday, June 13, 2008
Krauthammer is still there!
For the first time in ten months I read the Opinion pages of the New York Times and the Washington Post today. I sipped my first cup of coffee as I took in David Brooks and Charles Krauthammer. I should have waited until my second cup.
Krauthammer is still there on the Washington Post’s Opinion page lying to America. Today he was offering John McCain campaign advice, really though, he was lying about the state of affairs in Iraq. His aren’t big lies; he just applies a high polish to reality in such a manner as to obscure indisputable truths.
The fact is that our public forum is no longer, and may only in my imagined memories have been, equipped to handle the nuanced debate required to discuss the War in Iraq. Rather than a debate about the manner and conditions that will accompany the withdrawal our nation must see, it has been a debate about staying for 100 years or leaving immediately. Neither of these hyperbolic positions duly addresses the problems we face. But our national problem in this discussion goes beyond this, we have commentators who dominate the public sphere that willfully ignore, or lie, about the nature of events on the ground in Iraq, to wit: Krauthammer lists the various successes that the Iraqi government has witnessed since last September. In these he includes, “6. Parliament passed the other reconciliation benchmarks.”
Yes, the Iraqi Parliament has passed some of the reconciliation benchmarks. It has not, however, passed all of them: namely, the Iraqis have still not passed the election reform law so that the status of Kirkuk can be resolved. Nor have they settled on the distribution of petroleum resources. In fact, while the attacks on US and Iraqi forces have subsided, the Maliki government has been unable to take advantage of the so-called surge and achieve the political reconciliation the surge was designed to allow. That government has left the most difficult decisions before it unresolved.
Krauthammer also states that Maliki’s government has taken on Shiite militias, but implies that he has taken on all Shiite militias. This is of course nonsense. While there can be no denying the improbable success the Iraqi Army has enjoyed in Basra – and yes, that was a success – and Sadr City, the government has simply become reliant upon the Badr brigade, the Shiite militia loyal to Abdul Aziz al-Hakim, who spent his time in exile in Iran and whose militia has been responsible for private prisons and torture chambers as well as death squads.
Iraq is not and has never been a simple place, nor from our perspective a simple problem. Our nation will soon be faced with many such and more complicated, intractable problems. Our political leadership and our media are ill-equipped for the fast approaching future – it does us no good to yet have the pages of the New York Times and the Washington Post dominated by Charles Krauthammer and his half-truth telling ilk.
Krauthammer is still there on the Washington Post’s Opinion page lying to America. Today he was offering John McCain campaign advice, really though, he was lying about the state of affairs in Iraq. His aren’t big lies; he just applies a high polish to reality in such a manner as to obscure indisputable truths.
The fact is that our public forum is no longer, and may only in my imagined memories have been, equipped to handle the nuanced debate required to discuss the War in Iraq. Rather than a debate about the manner and conditions that will accompany the withdrawal our nation must see, it has been a debate about staying for 100 years or leaving immediately. Neither of these hyperbolic positions duly addresses the problems we face. But our national problem in this discussion goes beyond this, we have commentators who dominate the public sphere that willfully ignore, or lie, about the nature of events on the ground in Iraq, to wit: Krauthammer lists the various successes that the Iraqi government has witnessed since last September. In these he includes, “6. Parliament passed the other reconciliation benchmarks.”
Yes, the Iraqi Parliament has passed some of the reconciliation benchmarks. It has not, however, passed all of them: namely, the Iraqis have still not passed the election reform law so that the status of Kirkuk can be resolved. Nor have they settled on the distribution of petroleum resources. In fact, while the attacks on US and Iraqi forces have subsided, the Maliki government has been unable to take advantage of the so-called surge and achieve the political reconciliation the surge was designed to allow. That government has left the most difficult decisions before it unresolved.
Krauthammer also states that Maliki’s government has taken on Shiite militias, but implies that he has taken on all Shiite militias. This is of course nonsense. While there can be no denying the improbable success the Iraqi Army has enjoyed in Basra – and yes, that was a success – and Sadr City, the government has simply become reliant upon the Badr brigade, the Shiite militia loyal to Abdul Aziz al-Hakim, who spent his time in exile in Iran and whose militia has been responsible for private prisons and torture chambers as well as death squads.
Iraq is not and has never been a simple place, nor from our perspective a simple problem. Our nation will soon be faced with many such and more complicated, intractable problems. Our political leadership and our media are ill-equipped for the fast approaching future – it does us no good to yet have the pages of the New York Times and the Washington Post dominated by Charles Krauthammer and his half-truth telling ilk.
Wednesday, June 11, 2008
The Times have Changed
Madeline Albright in an Op-Ed in the New York Times today rightfully criticizes the impotence of the global community to compel the Burmese government to action to aid or simply to allow others to aid the suffering so many endured in the wake of the cyclone several weeks back. She bemoans that sovereignty as the ultimate foundation of the international system is back in vogue and she blames this resurgence on President Bush and the US-led invasion of Iraq.
I think her assessment of the situation is correct, but she gives her villain too much credit. The Iraq War is the turning point, where we realize that the world has changed since the creation of the UN after World War II and that the new global order is starting to take shape since the fall of the Berlin Wall after nearly two decades of global confusion as to what was to come next.
Without a doubt, sovereignty as the guiding principle of the global order is back on the rise. It never totally faded away but there were flashes were it was subjugated. The problem we face now is that there are too many global leaders, which forces less powerful countries to act as if they lived in an anarchic world. It was easier during the Cold War. There were two sides and both sides had the nearly unchallenged military and economic might to project their influence to the far corners of the world. In the process both sides left a path of destruction and a several generations imbued with resentment towards the omni-present forces of the East and the West.
In the 1990s it was clear that the Soviet Union could no longer project their influence around the world, they were no longer of the means to do so. It was a jubilant time. It was the seeming golden opportunity for the global community to coalesce around shared aspirations of equality and fairness. Desert Storm was an incredibly successful and restrained collective military action. Emergency and unrequested aid was sent to Somalia. The US-led NATO forces intervened in Bosnia to stop a genocide. It was a heady time to be a diplomat, and it was the time when Madeline Albright so the better angels of humanity strike a blow against the demons of our flawed nature. The world is not a static entity, however. There is no status quo only a status at the moment. The world stumbled. American soldiers died in Somalia and American citizens asked why. The Hutus set out to annihilate the Tutsis (artificial ethnic groups created by Belgian colonialists) in Rwanda and the White House press room demurred on terminology.
These were but the first let downs in the dream of collective security. The Iraq War was the straw that broke idealism’s back. The Bush administration failed to gain adequate international support (for reasons we will talk about in a few) and charged ahead anyway with the coalition of the cashed checks. It was a stunning invasion and a sputtering occupation. The Iraq War proved that even America, the “victor” of the Cold War, was unable to force the benevolent gift of democracy on people. It also showed that our inability to force democracy might not disqualify invasion as a legitimate policy tool. Suddenly may countries got very rigid to work with the US and rather then making the governments of “rogue” states scared of invasion, we made the populations of these “rogue” states afraid that we would essentially break their country turning a bad situation worse.
The reasons the US failed to get proper international support is not for lack of true intelligence. At the time the global consensus was that Iraq had WMD. The problem was that America’s prestige had slowly eroded, while several other countries’ prestige was on the rise. China and India were new, big players in the international arena. The ruling class of nations (the US and Western Europe) had never faced this situation before. So the US kept insisting it was the unipolar leader of the world and Europe stoked the long burning coals of xenophobia and isolationism. Europe’s response, I believe, was in large part due to the US being able to project the kind of unchallenged military power (the oft called security umbrella) around the world any more. So the US continued to over estimate its own importance (a truly American character trait) and Europe just tried to make sure Europe remained European. All the while China consolidated power and offered a less judgmental kind of cooperation with the questionable governments of the world.
To bring this back to Burma, China trades with Burma and so long as the money is right China could care less about the regime in charge of the plight of Burmese citizens. Welcome to the perfect combination of Stalinist authoritarianism and laissez-faire capitalism. The rest of the world could do little. The US lacked the moral authority or diplomatic clout to bring a change in behavior, and as the US diminished in prestige it sought to torpedo the UN leaving the UN incapable of dealing with the crisis either. And so the Burmese people suffer and the world watches as it has gone for centuries, only this time we get to see the suffering in hi-def.
The basic global order has changed. We live in a multi-polar world, driven primarily by economics, not idealism. Perhaps this is the natural order. Perhaps this is the best we can do as a global community. It’s tough to say, but one thing is certain. People all over the world suffer because their governments don’t care about them, and there isn’t any help on the way.
I think her assessment of the situation is correct, but she gives her villain too much credit. The Iraq War is the turning point, where we realize that the world has changed since the creation of the UN after World War II and that the new global order is starting to take shape since the fall of the Berlin Wall after nearly two decades of global confusion as to what was to come next.
Without a doubt, sovereignty as the guiding principle of the global order is back on the rise. It never totally faded away but there were flashes were it was subjugated. The problem we face now is that there are too many global leaders, which forces less powerful countries to act as if they lived in an anarchic world. It was easier during the Cold War. There were two sides and both sides had the nearly unchallenged military and economic might to project their influence to the far corners of the world. In the process both sides left a path of destruction and a several generations imbued with resentment towards the omni-present forces of the East and the West.
In the 1990s it was clear that the Soviet Union could no longer project their influence around the world, they were no longer of the means to do so. It was a jubilant time. It was the seeming golden opportunity for the global community to coalesce around shared aspirations of equality and fairness. Desert Storm was an incredibly successful and restrained collective military action. Emergency and unrequested aid was sent to Somalia. The US-led NATO forces intervened in Bosnia to stop a genocide. It was a heady time to be a diplomat, and it was the time when Madeline Albright so the better angels of humanity strike a blow against the demons of our flawed nature. The world is not a static entity, however. There is no status quo only a status at the moment. The world stumbled. American soldiers died in Somalia and American citizens asked why. The Hutus set out to annihilate the Tutsis (artificial ethnic groups created by Belgian colonialists) in Rwanda and the White House press room demurred on terminology.
These were but the first let downs in the dream of collective security. The Iraq War was the straw that broke idealism’s back. The Bush administration failed to gain adequate international support (for reasons we will talk about in a few) and charged ahead anyway with the coalition of the cashed checks. It was a stunning invasion and a sputtering occupation. The Iraq War proved that even America, the “victor” of the Cold War, was unable to force the benevolent gift of democracy on people. It also showed that our inability to force democracy might not disqualify invasion as a legitimate policy tool. Suddenly may countries got very rigid to work with the US and rather then making the governments of “rogue” states scared of invasion, we made the populations of these “rogue” states afraid that we would essentially break their country turning a bad situation worse.
The reasons the US failed to get proper international support is not for lack of true intelligence. At the time the global consensus was that Iraq had WMD. The problem was that America’s prestige had slowly eroded, while several other countries’ prestige was on the rise. China and India were new, big players in the international arena. The ruling class of nations (the US and Western Europe) had never faced this situation before. So the US kept insisting it was the unipolar leader of the world and Europe stoked the long burning coals of xenophobia and isolationism. Europe’s response, I believe, was in large part due to the US being able to project the kind of unchallenged military power (the oft called security umbrella) around the world any more. So the US continued to over estimate its own importance (a truly American character trait) and Europe just tried to make sure Europe remained European. All the while China consolidated power and offered a less judgmental kind of cooperation with the questionable governments of the world.
To bring this back to Burma, China trades with Burma and so long as the money is right China could care less about the regime in charge of the plight of Burmese citizens. Welcome to the perfect combination of Stalinist authoritarianism and laissez-faire capitalism. The rest of the world could do little. The US lacked the moral authority or diplomatic clout to bring a change in behavior, and as the US diminished in prestige it sought to torpedo the UN leaving the UN incapable of dealing with the crisis either. And so the Burmese people suffer and the world watches as it has gone for centuries, only this time we get to see the suffering in hi-def.
The basic global order has changed. We live in a multi-polar world, driven primarily by economics, not idealism. Perhaps this is the natural order. Perhaps this is the best we can do as a global community. It’s tough to say, but one thing is certain. People all over the world suffer because their governments don’t care about them, and there isn’t any help on the way.
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