Now there is the inevitable panic over oil prices, and delight amongst the oil traders (I read somewhere that a barrel of oil is traded 47 times before entering the consumer market).
So what’s it all about? Are we on the brink of huge price increases? Rationing? A new Great Depression?
We need to factor into the situation a few home truths to be able to form a prediction.
The largest oil producer in the world is not Saudi. It’s Russia.
The second largest is America.
My friend Jim Fideldy from Minneapolis , who drilled for oil for a living before selling his company a short while ago, tells me that there is such an oil boom in North Dakota that there is a huge shortage of labour and house rents are going off the clock. We don’t hear much of this in the media. The major new field in North Dakota produces so much oil that it has put US domestic storage under pressure. The surplus is so great that a wide gap has opened up between the world's two major benchmark prices, WTI (US driven) and Brent (mainly Asian demand-driven).
Horizontal drilling is one of the tech advances that have allowed global reserves to continue increasing despite very limited opening up of major new oilfields over the past 20 years.
If America only consumed the same amount of oil per head as Europe this would save the equivalent of the whole of Saudi’s annual output. So it’s time for the Yanks to wean themselves off the black stuff.
Saudi is the third largest producer BUT it is the only major oil exporter that has surplus capacity. Iran is only producing at about half the pre-revolution rate, so there must be plenty of spare capacity there that might be exploited when that domino topples, as it surely must before long. The oil industry in Venezuela is going downhill with the rest of the economy under the lunatic socialism of Chavez.
My take?
If the price spike is relatively short-lived, the impact on recovering Western economies will be manageable. But demand for Arabian oil will increase because of demand from the burgeoning Asian economies, so political upheaval in the Gulf States could be critical. We may be in for a bumpy ride. In particular, the US economic recovery is very fragile, and another oil shock could tip it back into recession.
Looking on the bright side.........
Who is now at serious risk of becoming a collateral casualty of the Fall of the House of Gaddafi? Step, forward Comrade Bob Mugabe, bwana m’kubwa of the Peoples’ Democratic Republic of Zimbabwe. Good Old Bob has been a bosom buddy of the Libyan loony from early days. His barbaric regime has been propped up by repeated grubstakes in money and oil in return for massive diamond concessions. When this is removed – like, with immediate effect – we can expect to see ferocious infighting amongst the various pimps, whores and comic-singers who have utterly destroyed a wonderful country.
But don’t expect a jacaranda revolution there. The next tyrant will be whoever is the nastiest and most blood-thirsty of the Generals and Party bosses.
Eurotrash
The EU has funded a Spanish sex shop, with money coming from the European Social Fund. The shop received €611.15 in order to "improve the employability of the unemployed".