Posts Tagged ‘oil’

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Published: March 4, 2008

Capping a relentless rise in recent years, oil prices hit a record high during the day on Monday, then pulled back to close below the record.

The day’s highest trading price, $103.95 a barrel on the New York Mercantile Exchange, broke the record set in April 1980 during the second oil shock. That price, $39.50 a barrel, equals $103.76 today, when adjusted for inflation.

The surge in energy prices is taking place as investors seek refuge in commodities to offset a slowing economy and a declining dollar. Analysts pointed out that financial institutions like pension funds and hedge funds are also buying oil and other commodities like gold as hedges against a rise in inflation.

That trend is expected to continue, especially after Ben S. Bernanke, the chairman of the Federal Reserve, signaled last week that he was ready to cut interest rates further to bolster economic growth, despite rising consumer prices.

“When investors lose confidence in the central bank, they tend to look for hard assets,” said Philip K. Verleger, an economist and oil expert. “The Fed’s capitulation on inflation is driving investors to commodities.”

For example, Calpers, the California Public Employees’ Retirement System, the largest United States pension fund, said last week that it might increase its commodities investments sixteenfold to $7.2 billion through 2010, to benefit from an across-the-board surge in commodities like gold, silver, oil and wheat.

The latest catalyst for the spike in energy prices has been the recent fall in the value of the dollar, analysts said. Currency traders are selling dollars and buying euros to take advantage of the difference in interest rates between the United States and Europe.

After steep declines last week, the dollar dropped to a record $1.5274 against the euro on Monday before recovering somewhat. It also fell to its lowest level in three years against the Japanese yen.

Like many commodities, oil is priced in dollars on the international market. A falling dollar tends to buoy oil prices in part because consumers using stronger currencies, like the euro or yen, can afford to pay more per barrel.

“The question for oil is, Where is the dollar going?” said Roger Diwan, a managing director at PFC Energy, a consulting firm in Washington. “That’s going to be the main market mover in the short term.”

Since 2000, oil prices have more than quadrupled as strong growth in demand from the United States and Asia outstripped the ability of oil producers to increase their output.

The rising prices of the past decade failed to dent global economic growth as consumers absorbed the higher costs. Even now, with the United States economy slowing markedly, the trend has not slowed much. Global oil consumption is still expected to increase by 1.4 million barrels a day this year, driven by demand in China and the Middle East.

Still, today’s market climate is markedly different from the energy crises of the 1970s and 1980s. These were brought about by sudden interruptions in oil supplies, like the 1973 Arab oil embargo, the Iranian revolution of 1979 or the outbreak of the war between Iran and Iraq in 1980.

Also, the United States’ economy was once much more dependent on oil than it is today. The amount of oil needed to increase economic output by $1 has dropped by 25 percent since 1990.

In the early 1980s, energy accounted for about 8 percent of disposable income in American households. As the economy became less energy-intensive and prices declined, that share fell to under 4 percent in the early 1990s.

But as prices keep rising, the share of energy spending has been increasing. It reached more than 6 percent of household disposable income in December.

Other energy futures also rallied on Monday. Gasoline and heating oil futures both jumped to records. Natural gas prices, which are up 24 percent since the beginning of the year, closed unchanged at $9.346 per thousand cubic feet.

After hitting $103.95 in New York trading on Monday morning, crude oil pulled back to close at $102.45. In London, Brent crude oil futures rose 38 cents, to $100.48 a barrel.

Gold also reached a record after several days of large gains; it traded on Monday at $989.54 an ounce.

With oil setting fresh records, many analysts expect gasoline to approach $4 a gallon on average this summer. Gasoline prices have been rising sharply in recent days and have hit $3.16 a gallon on average, according to AAA, the automobile club. They are closing in on last year’s record of $3.23 a gallon.

There is evidence that these high prices are finally causing consumers to cut consumption.

According to the latest government figures, released Monday by the Energy Department, gasoline demand fell by 1 percent in December 2007 from the previous year. Oil demand was nearly flat last year as well.

Gasoline accounts for about half of the total oil used in the United States, which consumes one in four barrels of oil produced worldwide each day. Most experts say the price of oil is not about to drop anytime soon. Saudi Arabia’s oil minister, Ali al-Naimi, said crude prices were unlikely to fall below $60 a barrel because the cost of developing new supplies, from sources like Canadian tar sands, is rising.

“Therefore, a line has been drawn below which the price cannot fall,” Mr. Naimi said in an interview published over the weekend by Petrostrategies, an industry newsletter in Paris.

Mr. Naimi’s comments came as the OPEC oil cartel prepares to meet on Wednesday. It is expected to leave its production levels unchanged.

The oil producing group suggested last month that it might curb production soon to make up for a seasonal decline in oil demand. But with oil prices at current levels, analysts said members of the Organization of the Petroleum Exporting Countries would find it politically difficult to curb their output now.

Some analysts expect oil producers to trim their production informally to avert an oil surplus in coming weeks. Others say OPEC, which controls 40 percent of the world’s oil exports, is being pulled apart by contradictory pressures.

“The market around the fringes is starting to fray,” said Lawrence J. Goldstein, an economist at the Energy Policy Research Foundation. “Yet ironically, you are looking at triple-digit oil prices because the price is being set by nonphysical investors.”

NYT Source: Oil Tops Inflation-Adjusted Record Set in 1980

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Economists, politics and other readers who are reading this article may say “of course the oil price and the euro dollar exchange are in relationship”. But what we want to write now is: “Do you really know how much is this relationship and its correlation with the Iraq war?

Let’s start.

We get the euro-dollar exchange rate chart in the last 5 years, from 2003 to 2007, from the European Central Bank statistics section.

We get the Light Crude Oil (CL, NYMEX) Historical Commodity Futures Charts in the last 5 years from 2005 to 2007 charts and from 2003 to 2004 charts.

We didn’t found a chart with the last 5 years for oil prices, so we had to rescale the five charts we found and then we compared it with the euro-dollar exchange rate chart. What did we find?

euro dollar exchange vs oil price

Click on the above image to enlarge it

What can you see? It seems there are no relationships between the two charts from 2003 to the end of 2006. But from Feb 2007 they have almost the same trend! Quite strange!

In November 2000, Iraq began selling its oil in euros. Iraq’s oil for food account at the UN was also in euros and Iraq later converted its $10 billion reserve fund at the UN to euros. Several other oil producing countries have also agreed to sell oil in euros-Iran, Libya, Venezuela, Russia, Indonesia, and Malaysia (soon to join this group). In July 2003, China announced that it would switch part of its dollar reserves into the world’s emerging “reserve currency” (the euro). (from The Invasion of Iraq: Dollar vs Euro)

Until the start of the Iraq war the euro dollar exchange was stable and about 1, which means that USA and EU had almost the same purchasing power. But suddenly euro became more powerful… What USA could do?

Where Europe buy oil? By Middle East maybe? By Iraq primarily? Goal.

Despite war, euro was keeping stable, dollar was going down day by day. USA had to consider that from 2020 their oil reserves will finish. Who has the remaining oil? More than 60% of world’s remaining oil is controlled by Middle East:

  • Saudi Arabia: 262 billion barrels
  • Iran: 132 billion barrels
  • Iraq: 115 billion barrels
  • Kuwait: 99 billion barrels
  • United Arab Emirates: 97 billion barrels

Ok.. The Bin Laden family is in affairs with USA for billions of dollars and they are in relationship with the Bush family through the Carlyle Group.

Kuwait was in debt with USA for its liberation from Saddam Hussein during the first Iraq war: Kuwait is a friend.

United Arab Emirates are friends.

Strange, there are Iran and Iraq: they didn’t see USA as well. For first we saw the war declaration to Iraq without any documented reason (no mass destruction weapons has been never found) and in this days what do we see? USA is looking for some reasons to declare a war to Iran. Is it a case?

But what happened in Jan/Feb 2007, in order to increase the oil price per barrel?

January 10, 2007, 9:01 P.M. EST – G.W.Bush:

To establish its authority, the Iraqi government plans to take responsibility for security in all of Iraq’s provinces by November. To give every Iraqi citizen a stake in the country’s economy, Iraq will pass legislation to share oil revenues among all Iraqis. To show that it is committed to delivering a better life, the Iraqi government will spend $10 billion of its own money on reconstruction and infrastructure projects that will create new jobs. To empower local leaders, Iraqis plan to hold provincial elections later this year. And to allow more Iraqis to re-enter their nation’s political life, the government will reform de-Baathification laws, and establish a fair process for considering amendments to Iraq’s constitution.

America will change our approach to help the Iraqi government as it works to meet these benchmarks. In keeping with the recommendations of the Iraq Study Group, we will increase the embedding of American advisers in Iraqi Army units, and partner a coalition brigade with every Iraqi Army division. We will help the Iraqis build a larger and better-equipped army, and we will accelerate the training of Iraqi forces, which remains the essential U.S. security mission in Iraq. We will give our commanders and civilians greater flexibility to spend funds for economic assistance. We will double the number of provincial reconstruction teams. These teams bring together military and civilian experts to help local Iraqi communities pursue reconciliation, strengthen the moderates, and speed the transition to Iraqi self-reliance. And Secretary Rice will soon appoint a reconstruction coordinator in Baghdad to ensure better results for economic assistance being spent in Iraq.

Oh, USA is very polite to want to build infrastructure projects that will create new jobs in Iraq, with iraqi $10 billion.

Who will coordinate this reconstruction? The Secretary Rice. Who is her?

Rice headed Chevron’s committee on public policy until she resigned on January 15, 2001, to become National Security Advisor to President George W. Bush. Chevron honored Rice by naming an oil tanker Condoleezza Rice after her, but controversy led to its being renamed Altair Voyager.[25]

She also served on the board of directors for the Carnegie Corporation, the Charles Schwab Corporation, the Chevron Corporation, Hewlett Packard, the Rand Corporation, the Transamerica Corporation, and other organizations.

A “Chevron’s woman” who coordinate USA project about iraqi oil… What is Chevron?

Chevron Corporation is the world’s fifth largest global energy companies. Headquartered in San Ramon, California, USA and active in more than 180 countries, it is engaged in every aspect of the oil and gas industry, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. Chevron is one of the world’s six “supermajor” oil companies.

January 23, 2007, 9:13 P.M. EST – G.W.Bush:

“Extending hope and opportunity depends on a stable supply of energy that keeps America’s economy running and America’s environment clean. For too long our nation has been dependent on foreign oil. And this dependence leaves us more vulnerable to hostile regimes, and to terrorists — who could cause huge disruptions of oil shipments, and raise the price of oil, and do great harm to our economy.

It’s in our vital interest to diversify America’s energy supply — the way forward is through technology. We must continue changing the way America generates electric power, by even greater use of clean coal technology, solar and wind energy, and clean, safe nuclear power. (Applause.) We need to press on with battery research for plug-in and hybrid vehicles, and expand the use of clean diesel vehicles and biodiesel fuel. (Applause.) We must continue investing in new methods of producing ethanol — (applause) — using everything from wood chips to grasses, to agricultural wastes.

We made a lot of progress, thanks to good policies here in Washington and the strong response of the market. And now even more dramatic advances are within reach. Tonight, I ask Congress to join me in pursuing a great goal. Let us build on the work we’ve done and reduce gasoline usage in the United States by 20 percent in the next 10 years. (Applause.) When we do that we will have cut our total imports by the equivalent of three-quarters of all the oil we now import from the Middle East.

The people of Iraq want to live in peace, and now it’s time for their government to act. Iraq’s leaders know that our commitment is not open-ended. They have promised to deploy more of their own troops to secure Baghdad — and they must do so. They pledged that they will confront violent radicals of any faction or political party — and they need to follow through, and lift needless restrictions on Iraqi and coalition forces, so these troops can achieve their mission of bringing security to all of the people of Baghdad. Iraq’s leaders have committed themselves to a series of benchmarks — to achieve reconciliation, to share oil revenues among all of Iraq’s citizens, to put the wealth of Iraq into the rebuilding of Iraq, to allow more Iraqis to re-enter their nation’s civic life, to hold local elections, and to take responsibility for security in every Iraqi province. But for all of this to happen, Baghdad must be secure. And our plan will help the Iraqi government take back its capital and make good on its commitments.

It sounds great. In “Future of Iraq: The spoils of wa – How the West will make a killing on Iraqi oil riches“, By Danny Fortson, Andrew Murray-Watson and Tim Webb, Published on 07 January 2007 you can read:

Iraq’s massive oil reserves, the third-largest in the world, are about to be thrown open for large-scale exploitation by Western oil companies under a controversial law which is expected to come before the Iraqi parliament within days.

The US government has been involved in drawing up the law, a draft of which has been seen by The Independent on Sunday. It would give big oil companies such as BP, Shell and Exxon 30-year contracts to extract Iraqi crude and allow the first large-scale operation of foreign oil interests in the country since the industry was nationalised in 1972.

The huge potential prizes for Western firms will give ammunition to critics who say the Iraq war was fought for oil. They point to statements such as one from Vice-President Dick Cheney, who said in 1999, while he was still chief executive of the oil services company Halliburton, that the world would need an additional 50 million barrels of oil a day by 2010. “So where is the oil going to come from?… The Middle East, with two-thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies,” he said.

Oil industry executives and analysts say the law, which would permit Western companies to pocket up to three-quarters of profits in the early years, is the only way to get Iraq’s oil industry back on its feet after years of sanctions, war and loss of expertise. But it will operate through “production-sharing agreements” (or PSAs) which are highly unusual in the Middle East, where the oil industry in Saudi Arabia and Iran, the world’s two largest producers, is state controlled.

Opponents say Iraq, where oil accounts for 95 per cent of the economy, is being forced to surrender an unacceptable degree of sovereignty.

Ok, now we answered to our question “But what happened in Jan/Feb 2007, in order to increase the oil price per barrel?“.

You can add No human rights for Iraqi citizens, no democracy, no freedom.

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In this article we develop some ideas taken from “The Corporation” by Michael Moore, we thank him for his contribution.

What are the damages caused by corporations to individuals and the nature?

The petrochemical industry begun when they found out that they could synthesize any material that meet certain characteristics from the molecular breakdown of oil… One problem: many of these cause cancer.

We have this question: when we do something new, we ask which effects it has on us and the nature?

Today we can choose from thousands of things, but how many of these have quality? What was the price of comfort in choosing? For more supply and more convenience, we have failed to monitor quality and economy. To get increasingly reduced costs, we have finally achieved nothing quality in products and in life.

The corporation was created to ease the burden on the responsibilities of those who did not want responsibility for his actions. But then who pays for the work of the corporation? They believe they can plunder the earth, not remembering that it is not only their earth, but it is shared with everyone. If a thing of everyone has been damaged by someone or something, it is not right to punish offenders?

But the corporations know that the devastation creates opportunities: September 11 has doubled the value of gold, the war in the Gulf has tripled oil and the war in Iraq has pushed its price to $ 100 a barrel in these day.

Over the centuries we have taken the ground, then water and finally the air. These are not our properties: we found them here; on the contrary we divided and bartered them as if they were ours.

We suggest our Kassandra TV about Corporations.

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