May 17, 2007
The Tail that Wags the Dog of Oil Prices
Oil prices are being driven higher by a general dip in US petrol supplies, as Ed Crooks wrote yesterday. This is one of those counter-intuitive abnormalities that makes energy fun or frustrating, depending on your disposition. But it’s true, even though you may be hesitant to believe Abdalla Salem El-Badri, Opec’s secretary-general, because he has reason to want to downplay any blame attributable to the cartel, which has recently restricted its oil output to push prices up. See the AP story here. Instead, believe US refiners who are privately admitting to having trouble performing their regular scheduled maintenance on time, and for that matter on budget.
What is interesting is the reason: The general lack of parts and labour in a market of high demand that is making it more difficult to do everything from drilling new wells to retooling refineries. Now if only someone would come up with a better explanation than ‘psychology’ as to why refining less crude into petrol should drive crude prices up, rather than down. If you do, please do send us a comment…
I am glad you asked for comments. Not that I have a good answer to the question. I too have been thinking about this paradox, why lack of refining capacity in the USA is driving Brent crude prices up (I am shorting Brent futures). My conclusion is that the reasons given by economic journalists are pure nonsense. In the last week I have read that Turkish invasion of Iraq drives crude prices up, that it was because of (a non-existing) cyclone in the Gulf, or the situation in Nigeria (a ceasefire had been agreed and is holding) or (imagined) American gasoline (petrol) shortage and so on. I cant believe speculators are believing all these, psychology cannot explain massive imbecility. Or can it? I would thank you to comment more on this paradoxical issue.
Posted by: jaim klein | June 17th, 2007 at 10:51 am | Report this comment