OPEC stands for “Organization of the Petroleum Exporting Counties.” It is a cartel made up of 12 countries: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.
These countries produce much of the oil that the rest of the world buys, so they’ve banded together to ensure that everyone receives a fair price for their oil. The oil ministers of the member countries meet regularly in Vienna to discuss oil prices and production.
(photo credit: ezioman)
Let’s see if we can explain this one:
- The laws of supply and demand say that when supply of a particular product is low, its price goes up. And when consumer demand for that product is high, prices also go up.
- The opposite is also true: low demand = low prices; high supply = low prices.
- So when the oil minister of Saudi Arabia says that OPEC is cutting down on oil production because there’s too much supply in the market, you would think that oil is pretty cheap right now.
Nope. The price of oil is actually higher than it’s been in two and a half years. But it’s not high because of strong consumer demand (apparently demand is quite low since no one can afford it), and it’s not because of low supply (the minister says the market is actually “oversupplied” with barrels and barrels of black gold).
The price of oil is high because of the investors trading it on commodity markets. Because of all the civil unrest/ revolutions/ humanitarian disasters in North Africa and the Middle East right now, they’re worried about whether oil will become harder to get in the future.
So in this case, the price of oil has nothing to do with present-day supply and demand. It’s about a bunch of analysts who think that if a lot of oil-rich governments collapse, tomorrow’s supply might not meet tomorrow’s demand. (Dun dun dun dunnnnnnnnnn!)
(photo credit: Drew__)
If you’ve been in Europe recently, you’ve probably noticed all those extra digits in the price of “petrol.” In the U.S., we’re horrified at the idea of paying $4 a gallon for gas, but in Norway they’ve already blown past the equivalent of $9.
But… why? Is it harder to pump oil in to Norwegian gas stations? Is greater demand among the Norse driving prices up? Not even.
There are a few reasons, but according to Aaron Smith at CNN, it’s pretty much all about the government. Governments can either charge their citizens extra to buy gas (by taxing it) or the pay them to buy gas (by handing out subsidies, which lower the price per gallon).
Taxing gas is useful because the money pays for government programs. And handing out subsidies is useful if you want to keep your population happy. (You see this a lot in oil-producing nations like Saudi Arabia. It’s hard to be angry at the super-wealthy ruling elite when they’re basically paying for your gasoline.)
The moral of the story: Stuff is only worth what someone says it’s worth. $3 or $10, you still need it to make your Hummer go.
How much do you think you should pay to fill up your gas tank?
(photo credit: masochismtango)
Sustainability is in again! While China tries to prevent its economy from growing out of control, Spain is slowing down for a totally different reason.
“We are going to go a bit slower and in exchange we will consume less petrol and pay less money.” – Alfredo Perez Rubalcaba, Deputy Prime Minister
Could a small change in the speed limit be a sustainable way of reducing dependence on oil?
“Oil markets have been spooked by fighting that has tended to play out near oil facilities such as the Ras Lanuf oil terminal, in eastern Libya. The complex is currently in the hands of rebels, although Libyan warplanes have launched air strikes near rebel positions on the outskirts of the town, according to witnesses.
The fact that many of Libya’s key oil installations are in the hands of rebels creates a headache for oil companies already hit by the U.S. trade sanctions adopted last month against Libya. The violence is deterring tankers from loading cargoes in Libyan ports, and even when they succeed, it is unclear who they should be paying for the crude—the opposition forces or the Gadhafi regime.”
Is the fall of a violent dictator in the Middle East worth more expensive gas prices in the U.S.?
“(Reuters) – BP Plc (BP.L)(BP.N), whose Macondo well blowout in the Gulf of Mexico caused the worst offshore oil spill in U.S. history last year, co-owns the well that received the first deepwater drilling permit since the disaster.
BP is Noble Energy Inc’s (NBL.N) partner in the well, holding a 46.5 percent interest, BP said.”
If BP owns less than 50% of Noble Energy, how much influence do BP executives have over Noble’s business activities? Would an ownership percentage like this affect your decision to invest in a company like Noble?
(photo credit: paulhami)
Sometimes it’s true: the best way to deal with a bully is to ignore him. But everyone’s got to have a back-up plan, and it looks like the U.S. is getting fed up with the Somali pirate industry.
“Of course, I do not know what the U.S. will do in response to this latest atrocity. But Jefferson advocated an armed response and eventually war against Tripoli for far less provocation.” – Frank Lambert, professor at Purdue and an expert on the Barbary pirates
What company could come up with a profitable pirate-control product?
Check out the damage done as of the end of February 2011 in this New York Times infographic. The red numbers show number of vessels currently occupied by Somali pirates, and the white numbers show the number of civilians held hostage on each.
(credit: Bill Marsh and Scott Garapolo/The New York Times)
“CARACAS, Venezuela — A judge in a tiny courtroom in the Ecuadorean Amazon ruled Monday that the oil giant Chevron was responsible for polluting remote tracts of Ecuadorean jungle and ordered the company to pay more than $9 billion in damages, one of the largest environmental awards ever.”
Is $9 billion enough to cover large-scale destruction of the environment and irreparable damage to human health? Is it too much?
And would knowing that BP has already pledged $20 billion to pay for damages related to the Deepwater Horizon oil spill change your mind?
(photo credit: Stig Nygaard)
Russia needs more oil, and BP (remember them?) wants to help them get it… in the middle of the Arctic Ocean.
“One beaten man is worth two unbeaten men.” – Russian Prime Minister Vladimir Putin, on why working with BP is a good idea even after the disastrous Deepwater Horizon oil spill
What should Russia do now that its biggest national export is running out? Does it make more sense to spend money on a short-term solution or a long-term one?
credit: cjc4454
How is THAT possible? Well, the news won’t tell you everything about a company’s health. For that, we turn to our old friend the earnings report…
“It’s still the cheapest of the large-cap diversified (oilfield service) companies.” – Kurt Hallead, Analyst at RBC Capital Markets
What would your earnings report look like for the last quarter 2010? Would it reflect financial disasters (or successes!) from earlier in the year?