Is Barack Obama sufficiently dirty to win re-election? Not according to presumptive Republican nominee Mitt Romney, who says the president is too spic and span.
Calculating that clean energy is passé among Americans more concerned about jobs and their own pocketbooks, Romney is gambling that he can tip swing voters his way by embracing dirtier air and water if the tradeoff is more employment and economic growth.
Romney's gamble is essentially a bet on the demonstrated disruptive potency of shale gas and shale oil, which over the last year or so have shaken up geopolitics from Russia to the Middle East and China. Now, Romney and the GOP leadership hope they will have the same impact on U.S. domestic politics, and sweep the former Massachusetts governor into the White House with a strong Republican majority in Congress.
A flood of new oil and natural gas production in states such as North Dakota, Ohio, Pennsylvania, and Texas is changing the national and global economies. U.S. oil production is projected to reach 6.3 million barrels a day this year, the highest volume since 1997, the Energy Information Agency reported Tuesday. In a decade or so, U.S. oil supplies could help to shrink OPEC's influence as a global economic force. Meanwhile, a glut of cheap U.S. shale gas has challenged Russia's economic power in Europe and is contributing to a revolution in how the world powers itself.
But Romney and the GOP assert that Obama is slowing the larger potential of the deluge, and is not up to the task of turning it into what they say ought to be a gigantic jobs machine. The president's critics say an unfettered fossil fuels industry could produce 1.4 million new jobs by 2030. They believe that American voters won't be too impressed with Obama's argument that he is leading a balanced energy-and-jobs approach that includes renewable fuels and electric cars.
The GOP's oil-and-jobs campaign -- in April alone, 81 percent of U.S. political ads attacking Obama were on the subject of energy, according to Kantar Media, a firm that tracks political advertising -- is a risk that could backfire. Americans could decide that they prefer clean energy after all. Or, as half a dozen election analysts and political science professors told me, energy -- even if it seems crucial at this moment in time -- may not be a central election issue by November.
Yet if the election is as close as the polls suggest, the energy ads could prove a pivotal factor. "Advertising is generally not decisive. Advertising matters at the margins. ... But ask Al Gore if the margin matters," said Ken Goldstein, president of the Campaign Media Analysis Group at Kantar Media. "This is looking like an election where the margin may matter."
I wouldn't say Canadians were complacent about the U.S. market. But what has given them a bit of a wakeup call was that the evidence seemed so compelling why the U.S. should buy more oil from Canada, but yet the decision was delayed. We are not naïve about the politics in the U.S., but when we see such a compelling case, and yet it is not approved, it has given people a start. We need to look at alternatives.
I caught up to the Obama-ate-dog story only in replays of the White House correspondents dinner, but this is important: I confess that I ate dog meat, too. It was in the Philippines, in my first foreign posting. I was wandering through the mountains of Cebu province, looking for members of the outlawed New People's Army (remember them?) to interview. The owner of the hut in which we stayed one night offered up breakfast on our way out. "It's black dog," the fellow said, smiling and holding out the delicacy with both hands. "Why thank you," I replied. I dined gratefully. This is called going with the flow. (Memo on how to eat black dog meat while searching for rebel fighters in mountain hideouts: Don't think. Eat. Smile at host.)
My next posting was Pakistan. On a trip through Afghanistan
during the Najibullah days (remember him?), I was the guest of some mujahedin
in Kandahar province. Near the end of an outdoor dinner, the local commander
bestowed on me the most honored morsel he could think of -- a fistful of raw
sheep's fat. Mmmmmm. Scrumptious. (Memo on how to eat fistful of raw sheep's
fat while with Pathans: Wrap it in naan. Eat fast. Smile at host.)
that came the former Soviet Union, and fresh camel's milk in Turkmenistan,
horse meat in Kazakhstan, and who-knows-what-kind-of-innards in Chechnya.
I was never offered in Kazakhstan or Kyrgyzstan was the most delectable nomad
delicacy of all -- sheep's eyeball. In my first book, there is a photo of
then-BP CEO John Browne (remember him?) being handed one during dinner over a
big Kazakh oil deal that he desperately wanted. When you want an oil deal, you
eat the eyeball, and Browne did.
(Memo on how to eat an eyeball -- or a sheep's ear -- during oil negotiations in Kazakhstan: Don't chew. Swallow fast. Smile at host.)
Saul Loeb AFP/Getty Images
Has President Obama walled off the U.S. economy from a boomerang impact from stringent new oil sanctions against Iran? He suggests he has through a furiously negotiated web of agreements with allies and especially Saudi Arabia: In a pinch, the world's developed economies will release coordinated volumes of oil from their strategic petroleum reserves, and Saudi Arabia will step up production so that the flow is steady.
It is a system designed to perfection. Which may be the problem.
In three months, the new Western-led sanctions take effect to starve Iran of oil profits, and persuade it to halt its presumed development of nuclear weapons. The idea is that Iran will manage to sell less of its current 2.2 million barrels a day of oil exports, and what it does manage to unload will have to go at a steep discount. Being hurt in the wallet, and worried about the potential political fallout, the Iranians will abruptly compromise at the negotiating table (the next round starting April 13 in Istanbul).
Specifically, the Europeans are more or less halting purchases of Iranian oil by July 1; the U.S., in turn, is threatening penalties as of June 28 against any financial institution from any country that does business with Iran's central bank. But Obama and the Europeans want to make Iran the victim, and not Western motorists, and so have expended much effort to make sure there is plenty of non-Iranian oil available. On Friday, Obama said that, while he will keep monitoring the situation, the effort has succeeded.
The plans seem aimed at responding to any Black Swan event, the type of unforeseen calamities to which we have become accustomed the last five or so years -- among them, hurricanes, spontaneous popular uprisings, financial catastrophe.
These are precisely the events that keep oil traders employed. The trading pivot is spare production capacity -- the volume of extra oil that producers can pump and send to market should there be an emergency someplace. As of now, the world has an estimated 2.5 million barrels a day of spare capacity, almost all of it in Saudi Arabia, against daily global demand of about 89 million barrels a day. When a Black Swan erupts, traders bet against the ability of this spare capacity to respond sufficiently. That is when prices go up.
The thing is, though the western-led plans seem aimed at moderating such outcomes, they seem to leave almost no latitude for contingencies (pictured above, Filipinos agitated over price increases today). This is no fault of their own, mind you -- at the moment, there simply is very little spare capacity, and no plans by companies to create any for a few more years.
Jay Directo AFP/Getty Images
Let's say that the new conventional wisdom is correct -- that we ought to dispense of worries of resource scarcity, and embrace a dawning age of U.S. oil abundance and self-sufficiency. If we ask ourselves what that means, one conclusion is the apparent elimination of a central rationale for the development of clean energy technologies -- that the U.S. needs them to shed its reliance on unreliable oil imports from nefarious Middle East nations.
Clean-tech must be scrutinized through a political lens, because by and large, none of the technologies stands on its own feet as yet in the marketplace. They require political support to survive. Let's take a look at the calculus for clean-tech.
Industry analysts and journalists assert almost weekly (like Citigroup's Ed Morse and reporters at the New York Times) that U.S. shale oil and deepwater reservoirs, plus Canadian oil sands, are making the U.S. virtually self-sufficient in oil. (I myself have urged caution in this exuberance.)
In response, President Barack Obama said last week that oil drilling is not the "be-all, end-all strategy" of being energy self-sufficient, but rather that the U.S. requires "all of the above," meaning solar, wind and biofuels, too. He said this because he wants to retain federal support for cleantech companies and research, but is being pummeled by opponents who call such assistance a boondoggle, and accuse him of hostility to oil. The other reason he said this is that gasoline prices in much of the country are well over $4 a gallon.
Already, politics have knocked out another pillar of the clean-energy foundation -- the push to hold down CO2 emissions. Since there is no longer apparent majority U.S. political will to stave off global warming, clean-tech has seemed to lose that logic for public support.
Now goes the argument of energy security: If the forecasts of a U.S. bonanza are accurate, biofuels, advanced batteries and other technologies will be unneeded for the purpose of energy freedom from the Middle East.
With planetary collapse and energy security eliminated from the calculus, clean-tech would be back to basics -- its sole apparent remaining case for public policy support, at least in the U.S., would be the popularity of things clean. Promoters of these technologies would either have to make that case, or become cost-competitive and survive in the marketplace.
Frederic J. Brown AFP/Getty Images
In a 2006 cover story in FP, the columnist Thomas Friedman described what he called "The First Law of Petropolitics." In it, Friedman revealed an inverse relationship between oil prices and the kindliness of petrocrats: As oil prices surge, the rulers of oil-producing countries tend to become inflated jerks; when prices are low, they are high-minded pussy cats.
Yet for all its genius, Friedman's law is limited: He was talking about pure petro-states such as Russia, Nigeria and Saudi Arabia. Isn't the behavior of freely elected leaders in developed economies influenced by any oil commandments?
I raise this question while observing President Barack Obama and oil companies act upon some other mutually understood political principle in the heat of the election-year campaign: Over the last week or so, American oil giants Chevron (see interview below) and ExxonMobil have suggested that Obama wise up and embrace America's inner-petrostate. Obama has responded by embracing his inner-cudgel, urging oil companies to accept a non-fossil fuel future, and meanwhile surrender $4 billion in tax breaks.
Oil is pivotal in the campaign platform of Obama's opponents. We see this most recently in finger-pointing over gasoline prices. But gasoline is not the operative hothouse for the top-line political battle. Instead, it is a sideshow to the central backdrop, which is the nation's high-stakes oil boom, a projected surge in the U.S. oil supply over the coming decade from shale oil, deepwater Gulf of Mexico reserves and imports from Canada's oil sands.
The opposing sides are capitalizing on high gas prices to advance competing, long-existing agendas -- Big Oil to pry open coveted basins underlying coastal and federal areas, and Obama to keep incubating still-early clean-energy technology.
Toward these aims, the oil industry's strategy is to persuade Americans that these closed-off lands are all that stand between U.S. independence from foreign oil, and continued fealty to those fellows governed by Friedman's First Law. For Obama, it is to contextualize the oil boom as big but historically ephemeral: Americans can bask in their gas-guzzling ways now, but must also begin to pave the way for the inescapable post-hydrocarbon era.
To state this as a corollary, there is a direct relationship between the vigor of an oil boom, and the temperature of high-flown political rhetoric. (Given the apparent hurt feelings afflicting both sides, one observes another active corollary -- a direct association between rising wealth and thinning skin, a sublaw that seems to straddle the oil and financial industries.)
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Look for President Barack Obama to order a significant release of oil from the Strategic Petroleum Reserve, the emergency stockpile held by the federal government. At most, it may trigger a short-lived drop in today's high gasoline prices. But Obama is battling history: Since Richard Nixon, gas prices have snuck up and startled otherwise occupied presidents, and led them into a flurry of actions that, while usually ineffective, have the virtue of making them look like they are doing something. Now is Obama's turn at the rite.
In a news conference yesterday, Interior Secretary Ken Salazar reached further into the past, noting that "all the way back to 1857, but bring it into the post-World War II era, you see the price shocks for both oil and gas that have occurred in this country and the different responses that are made." Salazar might have added that this vexing malady has afflicted not just U.S. leaders, but presidents and prime ministers around the world, most recently Nigerian President Goodluck Jonathan (and, pictured above, British Prime Minister David Cameron).
But the pursuit of sanctuary in history will do little good at the ballot box: Fresh polls in the New York Times and the Washington Post suggest that gas prices might be contributing to a drop in Obama's approval numbers. Though Obama spokesman Jay Carney yesterday assured reporters that "the Administration is not focused on polling data," that is belied by an outbreak of news conferences by members of Obama's team. The White House also yesterday released an update on its energy policy.
Obama's opponents have the knives out. One accusation is that Obama has manufactured high prices to encourage motorists to buy electric cars, to which Carney told reporters:
That is categorically false. This President is absolutely committed to reducing -- to doing everything we can to mitigate the effect of higher gas prices on American families and to lower gas prices. What he is not willing to do is to look the American people in the eye and claim that there is a strategy by which he can guarantee the price of gas will be $2.50 at the pump. Any politician who does that is lying, because it just -- that strategy does not exist. It is a simple fact that there is no such plan that can guarantee the price of oil or the price at the pump.
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Is Iran too cheap to haggle? Over the last week, we have observed the following out of Tehran: a halt of oil sales to the U.K. and France; threats against the West and its neighbors; and alleged bombings and bombing attempts in Georgia, India and Thailand. All of this has flowed out of Western-led efforts to choke off revenue from Iran's 2.5 million barrels a day of crude oil exports that last year totaled about $100 billion.
As a result, oil traders bid up oil prices early today to a nine-month high for both the benchmark U.S. and European blends. They are betting on the prospect of fighting, primarily the possibility of an Israeli strike, and a violent and unpredictable chain reaction.
Will Iran offer up serious concessions to nuclear inspectors from the International Atomic Energy Agency, who are currently in Tehran (pictured above, street scene in Tehran on Sunday)? If the record is an indication, Iran will stall. Meanwhile there is the danger of a miscalculation that, because of the U.S. presidential campaign, could force President Barack Obama -- despite his preference to press on sanctions -- to carry out a military attack. That's according to Karim Sadjadpour, an Iran export at the Carnegie Endowment who spoke with National Public Radio from Washington, D.C. Sadjadpour said:
According to the law of averages, if Iran continues to aspire to commit these acts of terror, at some point they're going to be successful. They are going to hit their target, and if they hit either a major American target abroad or they strike on American soil, I think it's going to be difficult for President Obama, in an election year, not to respond.
Behrouz Mehri AFP/Getty Images
In the last episode, we were awash in gas: President Barack Obama is using the language of a shale gas enthusiast, crowing this week that the United States has sufficient reserves of the fuel to last 100 years. For that reason, the U.S. ought to push ahead with natural gas development, as long as safety concerns are kept in mind, said Obama (above, pictured this week on the campaign trail). Almost simultaneously, though, large volumes of that gas have vanished. First, the administration's own energy think tank -- the Energy Information Administration -- sharply lowered its estimate of U.S. shale gas reserves: rather than the 827 trillion cubic feet in unproved technically recoverable reserves announced last year, the EIA estimates that the country has 482 trillion cubic feet, or 41 percent less. The drop is understandable -- it has to do with the addition of completed wells, which provides more data points for the EIA to insert into its reserves model. But some serious analysts think even the lowered numbers are soft; Chris Nelder, for instance, writes that all that can be surmised credibly is an 11-year supply of gas at current consumption rates.
Then there is actual production. Chesapeake and ConocoPhillips have both announced the withdrawal of a substantial volume of gas from the market because of firesale prices that prevail, currently $2.77 per 1,000 cubic feet, compared with $13 in 2008. Chesapeake -- the second-largest U.S. gas producer -- said it will sell 8 percent less gas this year than last; Conoco says it will lower production by 4 percent. It is not that the companies are going broke -- as discussed previously, much of the gas is in the same geological formations as highly lucrative oil, so drillers themselves say they earn excellent profit regardless. Yet, they would like to earn greater profit still by driving gas prices higher through the law of supply and demand -- currently, there is a super-glut of gas; they would like to reduce that to a mere glut. Of course, the drillers in part have themselves to blame for sagging U.S. gas demand: In 2009, the shale gas industry vigorously opposed Obama's push for cap-and-trade legislation, under which electric utilities would have accelerated their transition from coal- to gas-fired plants. The drillers would be selling much more gas, and prices would thus probably be higher. Alas, those politics were not to be. The Financial Times' Ed Crooks quotes Oppenheimer's Fadel Gheit: "I would expect all large gas producers without exception to scale back production this year."
These developments are important for a single reason: The U.S. is the epicenter of the global shale gas boom. Because of the U.S. bonanza, for example, Russia has been shaken in Europe. China might be next to join the boom. It is importing U.S. technology; if it succeeds in producing substantial shale gas, it could transform its own set of circumstances. But if the numbers are consequentially smaller than supposed, and if the market is slow to absorb the higher volumes, the geopolitical outcomes will be muted.
Go to the Jump for more of the Wrap
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In his State of the Union address last night, President Barack Obama spoke of the United States' unaccustomed new impact on global energy -- in addition to its habitual role as a world-class oil glutton, the U.S. is delivering a growing volume of oil and natural gas that has already shaken assumptions, and looks likely to roil geopolitics in a way favorable to Americans.
The speech put a spotlight on a new trend of plenty in the U.S. oil patch: On Monday, the U.S. Energy Information Administration reported that the U.S. is in the midst of a dramatic turnaround -- by the year 2035, U.S. demand for imported oil will have fallen by 18 percent, to some 7.36 million barrels a day, or a respectable 1.6 million barrels a day less than last year's volume.
Obama was citing the shift as a way to outflank Republican opponents and oil industry lobbyists who, as we've discussed, intend to spend outsized sums of campaign dollars on claims that he is choking oil production and jobs creation. Against that, Obama threw the oil and gas bonanza into a package, and said that the U.S. must both drill and spend much on futuristic clean-energy technology. The Republican response, by Indiana Gov. Mitch Daniels, suggested that Obama is an anti-oil ideologue.
That is politics, and we are sure to hear much on this subject from both sides through November. What is most interesting from my own standpoint is the sober feel of the EIA's findings after the growing accumulation of punch-drunk forecasts from others: From an array of our best energy minds -- at ExxonMobil, BP, Daniel Yergin's CERA and others -- we have heard that, with the help of Canada and Mexico, the U.S. on the verge not only of the bright future described by the EIA, but of achieving the mythical state of energy independence (strike the operatic score.). These Wise Men foresee a doubling of North American production to a whopping 22 million barrels a day.
Among the geopolitical impacts of such a shift would be far more proportional influence from Middle Eastern and other petro-potentates. There would be more political balance.
A key outcome of President Barack Obama's Asia tour is an apparent tactical withdrawal by China on drilling rights in the South China Sea. This does not mean that Vietnam, the Philippines and others in the sea can proceed with abandon, but -- at least for now -- Chinese naval ships may be less likely to interrupt oil and gas exploration. Locally there is some elation, with The Times of India calling it a "climbdown" by China.
The issue of who owns what waters in the East China and South China seas is wrapped up in both fortune and stature -- though the seas are relatively unexplored, some experts believe many billions of oil and gas lie underneath; in addition, China regards sovereignty over the waters as a sign of its great-power status. So over the last two years, numerous diplomatic and military confrontations have occurred between China and the oil-drilling plans of its neighbors. In 2010, it was particularly unseemly to observe Japan reduced to effective groveling after a confrontation with China over rare-earth minerals.
China being much larger, some of its intimidated neighbors have welcomed a stepped-up U.S. presence as an equalizer. That has played into narratives unfolding in the United States -- angst over a widely perceived national decline, along with Obama's difficult re-election battle.
All of these layers were on display Saturday, when 16 of 18 leaders gathered in Bali for an Asian summit one after another mustered their nerve and told Chinese Premier Wen Jiabao of their worry over the security of the waters off their shores. Obama expressed the same concern in the forum.
Romeo Gacad AFP/Getty Images
Should nations single out select big products to manufacture, and put millions to work on them in the confidence of a big economic upside? China has done so -- solar panels come to mind, in addition to wind turbines, high-end batteries and bullet trains. Japan has done similarly with cars since the 1980s, and South Korea more recently. But in the United States, this approach to industrialization is highly controversial -- swaths of the economic and political edifice scorn it in highly unflattering terms, such as that it is "chasing fads," and puts "the chosen few at a competitive advantage over all other job creators." (Above President Obama visits a Smith Electric Vehicles plant.) On the ExxonMobil website, Ken Cohen says parts of the Obama Administration's industrial policy amounts to "telling oil workers that their jobs are less valuable to the economy than those in other manufacturing industries."
Such detractors have gained fuel in recent weeks with the implosion of one of those winners -- the solar company Solyndra, which has filed for bankruptcy after receiving $535 million in stimulus funding. Yet the Administration is pushing ahead. Just last Friday, it announced a $90 million loan for a Colorado solar power project.
Over the last couple of weeks, the New York Times has been exploring industrialization in an interesting way. Here is what the issue adds up to: Manufacturing produces a lot of jobs -- five indirect jobs for each one in the actual plant, writes Louis Uchitelle in a piece yesterday. Therefore, if the U.S. wishes to drive down its long-term unemployment rate, factories must get up and running.
Uchitelle's piece features the thinking of Andrew Liveris, the CEO of Dow Chemical, who has made himself a spokesman for U.S. re-industrialization even as he has relocated much manufacturing to China. Dow is benefitting from $141 million in public funding for a Michigan solar pilot plant, and $161 million for a nearby advanced battery factory for electric cars. In both cases, the grants amount to half or more of the cost, but Liveris says that is what is required to revive the U.S. as a manufacturing country. He says the federal government must pick winners. "I would not let free markets rule without also addressing what I want manufacturing to be 20 or 30 years from now," Liveris says.
Saul Loeb AFP/Getty Images)
Oil traders are betting as a herd that they are on the cusp of potentially their most profitable period since the Libyan uprising stoked fears of Saudi Arabian oil being lost to the market. Hedge funds, among the biggest players in oil futures, are leading this charge, according to the U.S. Commodity Futures Trading Commission, which tracks such data. They have upped their bets on a serious rise in oil prices three weeks in a row -- the first time that has happened since late February-early March, Reuters reports.
We care about this directional betting because, if the hedge funds are correct, the global economic struggle faced by everyone except China will worsen. Plus, tens of billions of dollars will flow to petro-leaders -- in Russia, Venezuela, Iran -- whose behavior turns increasingly more discourteous when they are richer.
Specifically, here is what we have -- "long" bets on oil prices in the most recent reporting week rose to 182,285. That is far below the casino peak during the Libyan-fever, when there were 350,000 such bets on the table; but it is still up 8 percent over the previous week, a reasonably large jump.
What is causing this betting frenzy? Some will say it's a widely expected tightening of oil supplies later this year. But that explanation is not exceedingly persuasive because the long bet has come abruptly. Something more immediate is likelier at work -- such as the federal debt acrimony in Washington.
Look at the price of gold, for example -- it continued breaking records over the weekend, crossing $1,615 an ounce, a play by bettors perceiving higher investment risk out there.
So it is with oil. The bet is that, even if President Barack Obama manages to strike a debt-ceiling deal with Republicans in the coming days, it will not include sufficient budget cuts to satisfy rating agencies such as Standard & Poor's. The reasoning is that, should S&P downgrade the U.S. credit rating to say AA, traders in the casino will sell off the dollar. When that happens -- when the value of the dollar is driven down -- the price of oil will likely go up.
Update: In his morning note to clients, hedge fund strategist Peter Beutel calls the above bet "a classic case of buying rumors only to need to sell the fact." Meaning, a price runup will be followed by a plunge if traders apply the smell test to any debt deal between Obama and Republicans, and are not impressed.Beutel said,
Raising the debt cap will get us through this immediate crisis, but it won’t lead to a single new job or a dollar in GDP (although its failure would lead to the loss of both). Once traders get over the euphoria of Congress reaching agreement, there will not be much to build on afterwards. And that makes a selloff seem likely after approval.
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Osama bin Ladin is dead. So why haven't oil and gasoline prices moderated? We are paying $4.25 a gallon for regular gasoline here in Washington, D.C., much less than the $8 and more a gallon that Europeans face, but still a lot for us. At first, prices tried to go down after the slaying Sunday -- oil prices dropped overnight and into yesterday morning as traders (the folks whose casino behavior helps to determine prices) saw Osama's death as a reason for optimism. But then their opinion abruptly turned: Traders callously recalculated and decided that Bin Ladin and the group he fathered -- al Qaeda -- now rarely if ever threaten oil supplies, and sent prices back up.
During this irresolution, the price swung below $111 a barrel and as high as $114.83 before settling at $113.52 a barrel, the final dip resulting from the intrusion of a larger, new personality -- Ben Bernanke and the organization he runs, the U.S. Federal Reserve. Specifically, the ultra-weak dollar showed some spark and pushed the oil price down a bit.
Some traders and analysts think that Bernanke and the dollar are even bigger right now than Libya's Moammar Qaddafi or any other single Arab leader. Among them is hedge fund adviser Peter Beutel, president of Cameron Hanover, whose overnight note to clients said Bernanke looms larger:
As days pile upon days, the Fed almost certainly has its arms around more of them, with Bernanke's words ringing in the ears of more traders than the ramblings of Moammar Khadafi. Khadafi is the better quote. [But] Bernanke almost certainly gets more traders to reach for their wallets.
In a strange and perhaps dubious way, Bernanke emerges from Bin Ladin's death a clear winner -- it's settled now who is king when it comes to influence over oil prices. Who are some other winners and losers? A list follows in the jump, but please feel free to add your own in the comments box below.
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Oil whiplash in the Saudi kingdom: Saudi Arabia, which may or may not have raised oil exports to compensate for the loss of Libyan crude, is now talking internally about increasing spare production capacity to meet an expected surge in oil demand in coming years. That's according to Petroleum Intelligence Weekly, which has been solid on the highly opaque Saudis.
The Wall Street Journal notes this week that confusing information about Saudi production has exacerbated the volatility of the oil market -- the kingdom is by far the world's largest crude exporter, and it cultivates a reputation as a stabilizing force. In February, the Saudis made it known that they were putting more crude on the market in order to compensate for lost Libyan volumes. But this week, Energy Minister Ali Naimi said that in March the kingdom actually lowered production by 800,000 barrels a day for lack of demand. Some traders believe that, before the Saudis made that steep cut, they had been producing about 9 million barrels a day since November for domestic reasons, and simply used Libya as a pretext to make it public.
Whatever the case, PIW reports that the Saudis are now thinking of raising their production capacity to 15 million barrels a day, which would be a 20 percent increase from their current capacity of 12.5 million barrels a day. The discussions revolve around concern about surging Asian demand.
Bidding, not setting: When traders are in the casino, they bid up and down the price of oil -- this week above a smoking $112 a barrel. But are they also counting cards? As soon as you ask such a question, suggesting that trading is a conspiratory sport, you are getting pretty far out there -- manipulation happens (just ask Enron's many victims), but not often enough to be looking over one's shoulder. This week, President Obama fed such suspicious thinking by forming a task force to investigate whether high oil prices are a result of fraud or manipulation. Okay, he is running for re-election. But if you want to reduce some of the spikes up and down in oil prices, charge a higher fee for traders to bet. If it costs more for a seat at the table, betters have more reason to think twice before sitting down.
Anger to the left me, anger to the right: When oil prices shook off the Goldman Sachs malaise this week and went back through a new roof, not only Obama was angered. In Shanghai, truckers went on strike to force down fuel costs and port fees, the Financial Times reported; it was another opportunity for the ultra-paranoid Chinese government to worry about the Arab Spring, and remove any speck of news from the Internet. Meanwhile, Russia's Transneft is on the warpath against China over the price of oil. Transneft wants world prices for the crude it's shipping to China through Skorovodino, in Siberia, but somehow the two sides have a different idea of what that world price is, reports John Helmer on his blog. Prices are not going down soon, as we see in the worsening trouble reflected by Syria, and the world is only becoming more complicated, as I discussed with Scott Tong this week on Marketplace. And it's not even summer yet.
Good or bad luck in Nigeria? There is peace in the Niger Delta, but fury in the north as Nigeria -- the source of some 10 percent of the United States' crude oil supply -- prepares for its next round of voting, this time for local offices. So will we have debilitating trouble in another important oil state? Much depends on the actions of President Goodluck Jonathan, who won the right to continue for a full term in office after taking power on the death of his predecessor. Jonathan is from the south, which is generally what infuriated the north and supporters of his opponent. Writing in the New York Times, Dele Olojede, who edits the Nigerian newspaper NEXT, observes worrying signs in the unprecedented violence and disrespect of hallowed officials present in the north. Olojede calls for statesmanship by Jonathan and former military ruler Muhammadu Buhari, whom he defeated in the election.
As the year started, we were in the beginning stages of an unprecedented upheaval in global energy and an associated shakeup of geopolitical presumptions. A whole string of dominoes were poised to drop. Especially potent was a global glut in natural gas -- a technological breakthrough in shale gas drilling, plus a surge in liquefied natural gas, which together promised to deliver a reliable flow of the relatively clean fuel for decades. This alone made Russia weaker in Europe, which now had new supplies to challenge Gazprom's monopolistic hold on the continent. But it also was a potentially fundamental influence on China, which consequently could substitute gas for some of its projected steep growth in oil and coal consumption, and thereby significantly lower the currently foreseen buildup of heat-trapping gases. On top of that was a trend toward bigger and broader electrification - for powering cities and vehicles - that could shake up everything. Depending on what fuel is used to create the power, among the outcomes could be a lower growth rate in global oil consumption, and weaker influence for some current petro-states.
All that was before the Arab Spring and the Fukushima nuclear power plant crisis, which are roiling the politics of Middle East petro-states, as Javier Blas writes interestingly at the Financial Times, and the future of nuclear energy.
Today, President Barack Obama dove into this vortex with a fresh attempt to reshape how the United States powers its economy, homes and vehicles. But, for those that are not doing so already, countries around the world will also have to begin reconsidering their energy strategies. Because one can no longer state flatly that Saudi Arabia will be the strongest energy force on the planet for decades to come. China isn't necessarily going to be quite the greenhouse gas-spewing machine of current projections. Russia may not be the neighborhood bully, and may become much closer to the West. And so on -- one must recalibrate one's national and corporate strategy to take into account the potential results of a primary energy shakeup. Take a look at this video clip, then read on to the jump.
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