Sudan has declared war on South Sudan, India has fired a long-range missile, yet oil and gasoline prices are down.What is going on?

Common sense has come over our much-scorned oil trader friends in New York and London.

For months, there has been a global surplus in oil and gasoline, which should mean lower prices than we have seen. Yet, because of geopolitical tension such as the trouble between Iran and the rest of the world, prices have not dropped -- until now.

Oil prices are down again today, a declining trend that seems genuine when you get no bump-up despite official war between two modest oil-producers, and a missile test by a nuclear power with menace toward China.

The turn began two weeks ago with a sharp withdrawal from the futures market by hedge fund and investment bank traders, writes the Wall Street Journal's Konstanin Rozhnov. Venezuela is unhappy about the supply bulge, which has been assisted by growing volumes from Libya and Saudi Arabia. But, short of outright war involving Iran, prices look like they will continue to moderate.

I exchanged emails with Nick Butler, a former top lieutenant to John Browne at BP and now chairman of King's Policy Institute at King's College London. In an op-ed at the Financial Times, Butler forecast a plunge in oil prices, and I asked whether he thinks U.K.-traded Brent crude -- currently trading at over $117 a barrel -- will fall as far as the $80s-per-barrel range. "Who knows?" he replied. "I think [prices] will overshoot going down, and then stabilize back at $95 to $100.  But that is probably too rational." Butler does not think, like some of us, that pure good sense has conquered the market for now.

Read on

The news on the axis of oil -- Africa and South America: A key new travel route for oil executives is the south Atlantic shuttle between the west coast of Africa and the east coast of South America. This is because, geologically speaking, they are "anologues" -- millions of years ago, the two continents were united, so that when oil is found on the coast of one, it can also be found on the coast of the other. Take this week for example. Houston-based EnerGulf Resources announced that it is drilling a supergiant 3.1 billion-barrel oilfield off the coast of Namibia, Bloomberg reports. Meanwhile, across the Atlantic in northern Brazil, BP took a 40 percent stake in an offshore area held by Petrobras for an undisclosed sum of money; for BP, that is on top of a $3.2 billion investment in Brazil last year. On the South America side, this area is called the "equatorial margin," which includes northeastern Brazil, French Guiana, Guyana and Suriname, write Bloomberg's Peter Millard and Rodrigo Orihuela. Companies working the equatorial margin have conviction that they can find oil straight across the sea in Africa as well. The Bloomberg writers quote Bob Fryklund of IHS CERA, a Massachusetts-based energy research firm: "It's one of the hottest trends in the business at the moment. People are marching up and down the coasts to figure out where those fan-shaped deposits are."

Yet the African continent can be perilous, as Chinese companies have discovered. South Sudan has expelled the head of the Chinese-Malaysian partnership conducting most of the country's oil production, reports the Associated Press. Liu Yingcai, chief of Petrodar (81 percent owned by the China National Petroleum Company and Malaysia's Petronas), was given 72 hours to leave after being accused of helping Sudan to steal South Sudan's oil. The alleged theft of more than 2 million of barrels underlies a ferocious row between the two neighbors. South Sudan asserts that Petrodar helped Sudan to build a dogleg pipeline that aided the alleged oil theft. It is the second recent drama involving the Chinese -- last month, 29 Chinese workers in South Sudan were abducted and held for 10 days by rebel forces. Yet, for the reasons stated above, the stakes are too high to leave. China relies on Africa as a whole for 24 percent of its oil imports, writes Reuters' David Stanway, and is not likely to pull back.

For Putin, the price of oil goes up: Russian strongman Vladimir Putin is waging a furious contest for a third term as president. His opponent? Enemies abroad (mainly Americans) who, he suggests, covet Russia's oil, corrupt its citizens into traitorous behavior, and all in all wish harm to the country. To buttress his fiery defense of Russia against a potential new invasion such as Napoleon's of 1812 (yes Putin really cited the French dictator), Putin is promising to dispense billions of dollars -- for higher pay for police and doctors, for cheaper health care, and for a stronger military. The spending, and the sharp-edged confidence behind Putin's politics, both flow from the spigot of Russia's prodigious oil exports, writes the Financial Times' Charles Clover. Many of the world's petro-rulers have become bolder with the rise of oil prices, and more profligate with the revenue given the challenges of the Arab Spring. In Putin's case, it is less than two weeks before a March 4 election that has ignited unprecedented criticism of his rule. That he has resorted to populist spending places enormous demands on Russia's oil income. The state budget already required an estimated $90-a-barrel oil to break even. Now the break-even price could be $120 a barrel, Clover writes. He quotes former deputy energy minister Vladimir Milov: "For Putin to have serious room for maneuver, he needs to have oil at $150 or $200 per barrel. What we have now is not enough." Finances are just one indication of a coming post-election Russian hangover. Putin's jingoism does not seem to be mere electoral politics -- with opponents now able to muster tens of thousands of supporters in the street, Putin will continue to need a bogeyman in order to rule effectively. Look for reset -- the thaw between the U.S. and Russia of the last three years -- to stay stubbornly on the back burner.

Go to the Jump for more of the Wrap.

Read on

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

Read on