Michael UguliniOil That Is ...Black Gold, Texas Tea
June 8th 2008 03:44
It's causing turmoil, jitters, anger, and just about everything else in the world's economies. It's affecting every aspect of life as well - oil that is...black gold, Texas tea.
Food prices are rising because of increases in gas prices – the fuel needed to ship food products from manufacturers to wholesalers to your local retailer. Airfares are rising as airlines come to grips with rising fuel costs. Vacationers this summer may well be curtailing the length of their road trips, or abandoning them completely. Backyard pools may get more use this summer than in recent ones due to people staying put.
Sales of Spam luncheon meat are rising as consumers seek way to stretch their food dollars due to increased gas prices (and the credit crunch due to the mortgage debacle). Calls for alternative energy sources are getting louder, and louder...and then louder some more. People are accusing oil companies of price fixing. Oil companies are saying it's a simple case of supply and demand. Who to believe in the crazy world of oil is a matter of continuing debate?
Here are some interesting things to consider about oil. First off, oil is affecting political decision-making. It appears Wall Street banks are on some congressional leaders' radar. One of the main House Democrats in the U.S., Representative Bart Stupak (D., Michigan) said this week that oil and products markets were being "manipulated" by the bigger trading entities that are in the futures markets. He does further say that a look into this has not found any illegal activity. (Source: The Wall Street Journal, Friday, June 6, 2008). Hence, his word "manipulated". These remarks came out the same day crude oil futures closed at $127.79 a barrel.
Secondly, oil is causing chaos when it comes to forecasting. As Daniel Yergin, chairman of Cambridge Energy Research Associates said, "Predicting oil prices continually demonstrates the perils of prophecy, because oil prices are the derivative of what happens in the global economy and global geopolitics." (Source: Clifford Krauss: Economy and Geopolitics Decide Where Oil Goes Next, The New York Times, January 4, 2008).
Third, geopolitics is another consideration. Consider Thomas L. Friedman's words in the May/June(2006) issue of Foreign Policy magazine when he stated," According to the First Law of Petropolitics, the higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded. And these negative trends are reinforced by the fact that the higher the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them."
Thomas L. Friedman defines petrolist states as ones like Azerbaijan, Angola, Chad, Egypt, Equatorial Guinea, Iran, Kazakhstan, Nigeria, Russia, Saudi Arabia, Sudan, Uzbekistan, and Venezuela. He says these countries have weak state institutions or outright authoritarian governments and rely on oil production for the bulk of their exports or GDP. He defines these as "petrolist states", not countries that have lots of crude oil and entrenched democratic institutions and diversified economies that were in place before their oil was discovered. Here we see geopolitics/petropolitics playing a part in the oil game – especially when it comes to freedoms too.
A fourth consideration is that of those who feel commodity prices will fall. Nouriel Roubini( Professor of economics at New York University's Stern School of Business) in the March/April (2008) issue of Foreign Policy magazine said, ""One need only look at the skyrocketing price of oil to see that worldwide demand for commodities has surged in recent years. But those high prices won't last for long. That's because a slowdown of the U.S. and Chinese economies – the two locomotives of global growth – will cause a sharp drop in the demand for commodities such as oil, energy, food, and minerals."
Then there's a fifth consideration concerning oil. Take journalist Rob Carrick's take in his Portfolio Strategy column in the Globe and Mail Newspaper (Canada) where he suggested that an inflation first aid kit might include gold, oil, and real estate. He said that you could build protection against inflation into your portfolio by having exposure to Commodities such as shares of energy, mining, and fertilizer companies as well as natural resource mutual funds. He also suggested looking at energy and materials sector exchange traded funds and commodity ETFs that act as a proxy for directly owning oil and natural gas.
Finally, consider who the oil producers are and how they influence oil prices. Neil Reynolds wrote in his Energy column for the Globe and Mail Newspaper (Canada) that Saudi Arabia is the number one producer, followed by Russia, and then it's the United States at number three. Then of course, there is Iran, Mexico, China, Canada, United Arab Emirates, Venezuela, Norway, and Kuwait amongst others.
These are considerations to think of when you think of the commodity called oil. Oil influences politics, freedoms, investing decisions, food prices, travel costs. It causes wars, makes people fortunes, and causes others to lose fortunes. It affects economic prognostications and causes heated debate among analysts and economists and business people as to the direction its price will go.
Black gold, Texas- and many other geographic locations' cup of tea- are what oil is today, and has always been.
Food prices are rising because of increases in gas prices – the fuel needed to ship food products from manufacturers to wholesalers to your local retailer. Airfares are rising as airlines come to grips with rising fuel costs. Vacationers this summer may well be curtailing the length of their road trips, or abandoning them completely. Backyard pools may get more use this summer than in recent ones due to people staying put.
Sales of Spam luncheon meat are rising as consumers seek way to stretch their food dollars due to increased gas prices (and the credit crunch due to the mortgage debacle). Calls for alternative energy sources are getting louder, and louder...and then louder some more. People are accusing oil companies of price fixing. Oil companies are saying it's a simple case of supply and demand. Who to believe in the crazy world of oil is a matter of continuing debate?
Here are some interesting things to consider about oil. First off, oil is affecting political decision-making. It appears Wall Street banks are on some congressional leaders' radar. One of the main House Democrats in the U.S., Representative Bart Stupak (D., Michigan) said this week that oil and products markets were being "manipulated" by the bigger trading entities that are in the futures markets. He does further say that a look into this has not found any illegal activity. (Source: The Wall Street Journal, Friday, June 6, 2008). Hence, his word "manipulated". These remarks came out the same day crude oil futures closed at $127.79 a barrel.
Secondly, oil is causing chaos when it comes to forecasting. As Daniel Yergin, chairman of Cambridge Energy Research Associates said, "Predicting oil prices continually demonstrates the perils of prophecy, because oil prices are the derivative of what happens in the global economy and global geopolitics." (Source: Clifford Krauss: Economy and Geopolitics Decide Where Oil Goes Next, The New York Times, January 4, 2008).
Third, geopolitics is another consideration. Consider Thomas L. Friedman's words in the May/June(2006) issue of Foreign Policy magazine when he stated," According to the First Law of Petropolitics, the higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded. And these negative trends are reinforced by the fact that the higher the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them."
Thomas L. Friedman defines petrolist states as ones like Azerbaijan, Angola, Chad, Egypt, Equatorial Guinea, Iran, Kazakhstan, Nigeria, Russia, Saudi Arabia, Sudan, Uzbekistan, and Venezuela. He says these countries have weak state institutions or outright authoritarian governments and rely on oil production for the bulk of their exports or GDP. He defines these as "petrolist states", not countries that have lots of crude oil and entrenched democratic institutions and diversified economies that were in place before their oil was discovered. Here we see geopolitics/petropolitics playing a part in the oil game – especially when it comes to freedoms too.
A fourth consideration is that of those who feel commodity prices will fall. Nouriel Roubini( Professor of economics at New York University's Stern School of Business) in the March/April (2008) issue of Foreign Policy magazine said, ""One need only look at the skyrocketing price of oil to see that worldwide demand for commodities has surged in recent years. But those high prices won't last for long. That's because a slowdown of the U.S. and Chinese economies – the two locomotives of global growth – will cause a sharp drop in the demand for commodities such as oil, energy, food, and minerals."
Then there's a fifth consideration concerning oil. Take journalist Rob Carrick's take in his Portfolio Strategy column in the Globe and Mail Newspaper (Canada) where he suggested that an inflation first aid kit might include gold, oil, and real estate. He said that you could build protection against inflation into your portfolio by having exposure to Commodities such as shares of energy, mining, and fertilizer companies as well as natural resource mutual funds. He also suggested looking at energy and materials sector exchange traded funds and commodity ETFs that act as a proxy for directly owning oil and natural gas.
Finally, consider who the oil producers are and how they influence oil prices. Neil Reynolds wrote in his Energy column for the Globe and Mail Newspaper (Canada) that Saudi Arabia is the number one producer, followed by Russia, and then it's the United States at number three. Then of course, there is Iran, Mexico, China, Canada, United Arab Emirates, Venezuela, Norway, and Kuwait amongst others.
These are considerations to think of when you think of the commodity called oil. Oil influences politics, freedoms, investing decisions, food prices, travel costs. It causes wars, makes people fortunes, and causes others to lose fortunes. It affects economic prognostications and causes heated debate among analysts and economists and business people as to the direction its price will go.
Black gold, Texas- and many other geographic locations' cup of tea- are what oil is today, and has always been.
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