A few days ago, Mr Chakib Khelil, the sitting president of this little mom-and-pop called OPEC, let us all know that if the dollar strengthens and we play nice with Iran, he might be kind enough to allow the price of crude oil to drop by as much as 45%. Then his Algerian man-servant wiped his brow, and emptied the bucket under his butt that catches all the cash leaking out.
I'm sure your first question is, "So why is the link above from xinhuanet.com?" Well, for a few reasons:
1) It is enlightening to get perspective from different periodicals from time to time.
2) Even if those periodicals are propaganda
3) EVERYTHING is propaganda.
One of the other reasons I took this from “China View” is that I was trying to find a news service that treated this like a story, and not like one of those obscure market-related things that the wire editor leaves for the night financial desk news aide who leaves at 8pm. Though this article doesn’t have a lot of depth, it does have a picture; they (meaning The Chinese (that's right... ALL of them)) must have felt that it was somewhat important. A picture attached to a story (like ones about celebrities) tends to mean that the editor (or, in this case, an entire nation) deemed it more important than a picture without a story (like ones about schools).
Mr Khelil noted that the recent drop in crude oil prices had nothing to do with demand. Rather, “He said the recent meeting between senior U.S. diplomat William Burns and Iran's chief nuclear negotiator Saeed Jalili in Geneva and the strengthening of dollar were the main factors that helped push the oil prices down rather than changes in supply and demand.” Yeah, I guess you’re right, supply and demand don’t really have anything to do with market price….
Wait a minute… I’ve heard those terms “supply” and “demand” before.... Come to think of it, I think they actually do have an effect on market price.
Basically, what the Reds are probably paraphrasing is that it is impossible to directly link the price of crude oil to the price of a gallon of gasoline/litre of petrol at your particular pump on any given day. That’s why as of today (7/30/2008), just because the price of crude oil has dropped around 17% from its peak doesn’t mean that the price of a gallon of gasoline will be $3.40 tomorrow. It is tough to have an exact view of what determines the price, and everyone has an opinion of what the main factors are. Granted.
Though he follows this up with “I do not see a fall in demand (and) supply is the same.” There are two main problems with this statement, and both have to do with him kind of being a liar.
In the US this week, (where oil consumption is more than 3x that of China (the next-hungriest comsumer)) there was a slight downtick in the Crude Oil Input to refineries, the Refinery Capacity Utilization, and Crude Oil imports week-on-week. Adding to Mr. Khelil’s squirreliness, Saudi Arabia is going through with its plan to increase production. Despite all this, Motor Gasoline production levels this week (in the aforelinked DOE report) remained basically the same.
So what the hell does all this mean?
Well, it's illustrating that just because your Hot Pocket is ready in two minutes doesn’t mean that the kid at the Exxon (XOM) station is watching a real-time oil futures ticker with a ladder at the ready. A sizeable chunk of the price of gasoline is a *kind-of-sort-of* leading indicator of the price of crude oil on the way up, and a *kind-of-sort-of* lagging indicator on the way down; and pretty much the grand majority of the crude oil price comes from the futures market. So, if the shmucks at the pump are willing to pay for gas at $4/gallon without a slowdown in demand, crude oil futures can pretty much assume an uptick, too. And they’ll price it as such. But just because demand (or Iran, or a stronger USD) has sent prices down, doesn’t mean they’ll comply at the pump in kind. Why should they? You’ve been willing to pay for it at prices that are sending truckers to demonstrations in DC. I mean, holy crap! Have you ever DRIVEN in DC? More than likely these guys spent the better portion of their demonstration in traffic… WASTING GAS! It costs these guys $1,000 to fill up, and they probably spent half of it waiting for the f’ing left turn at New York Ave and North Capitol Street. Isn’t that kind of like demonstrating against a newspaper by buying a bunch of ads in it?
Regardless, the whole thing is a goddamn mess. Is it speculators? Yes. Is it consumption? Yes. Is it our government? Yes. Is it everyone else’s government? Yes. Is it Taxes? Yes. Is it refineries and big business and your new truck and the credit crunch and your friends and Fox News and inflation and your Halloween costume last year and supply and demand and the cook and the thief and his wife and her lover? Yes. (Well, not the thief. He's a victim of society.)
So what do we do?
Well, the market appears to be taking care of it (sort of). With the slight downturn, it looks like we have pretty much decided what we will bear. For now.
So what do we not do?
Don’t put your fat ass back in your car just because it is a slightly less-crippling price to do so. What have you been doing? Taking the bus? The train? WALKING (g_d forbid)?!? Just keep doing it for chrissake. The last thing the oil market needs is continual volatility. The shorters will have a freakin’ field day. This could be the most useful demonstration that does not require anyone to chain themselves to anything. (Though, you should feel free if that's your thing.)
Yeah, I know. I’m dreaming again. But wouldn’t it be nice if we could all wait this out until the Teslas are priced like Corollas (and have room in the back for three carseats and your whole Wiggle’s DVD library)?
But what of that other factor in demand besides price? Competition. Mr Khelil mentions that, too. “The OPEC head also voiced dissatisfaction with some European countries' insistence on promoting bio-ethanol energy.” No kidding? The guy who runs a cartel is pissed off about competition, eh?
Shocking.
So, why do The Chinese care enough about this to give it a picture?
1) Cheaper oil is just as good for China, but not in the same way. They are, as mentioned, the #2 comsumer of crude oil, but they don't sell it at market prices. If there is a chance that the market price is going down, The Chinese will not be under as much international pressure to decrease their subsidy to The People. They like these things that keep the pressure off them so they can get back to the more important business of blaming Japan for everything.
2) The Yuan is no longer pegged directly to the $USD. But the floating currency training wheels that they have on are heavily influenced by the rise and fall of the $USD. So, a stronger Dollar is a nice thing for them to read.
3) China was part of the six-nation skidoo that backed the US and Iranian diplomats meeting in Geneva. And guess what? It was somewhere between a bitchfest and a failure as far as "The Colorful Lady of Record" is concerned.
So this is really just to seed a little more propaganda?
Yes. But who is really doing the propagandamentation? Probably everyone.
So this whole rambling crap parade was just to show that the media report things differently in different countries?
Yes. That, and to use the word "skidoo" in a context to mean "group of diplomats."
PROPAGANDA!!
...
Since we’re on the subject of energy, I can’t help wondering if the Ted Steven’s Indictment has anything to do with the completely in-state decisions on the TransCanada Alaska Pipeline project. Was he trying to get in on the deal to push it one way or the other and someone decided to push him out? Or are they a little behind the times in Alaska and JUST NOW getting around to ousting Republicans? Because, as you may have read, America’s Most Attractive Governor is about to be investigated for bringing a little Oprah Justice to Juneau.
So, if Gov Palin is ousted, who then ascends to the throne of America’s Most Attractive Governor? You guessed it: Maryland’s own Gov Martin O’Malley.