The biggest beneficiaries of this 'oil scare' have been the oil companies and of course the oil producing countries

Sep 12 - 18, 2005


I tried to find a logical reason as to why the Crude Oil shot up well above $7 per barrel on the news of Katrina! If anything, it should have triggered a sharp downturn as within a short period, a lot of receiving and crude processing facilities were immobilised I tried to find out who were the immediate beneficiaries of profits and losses resulting from this sudden increase!!

It was however a golden opportunity for those that have been profiting from the rise and rise of the Crude Oil over the past or not so recent past. It was easy to mobilize the paper market in the trading centres of the world. It was also easy to do so in a 'summer market' when a large number of participants are still away spending their money from summer oil trading in the holiday resorts of the world.

The biggest beneficiaries of this 'oil scare' have been the oil companies of the world and of course the oil producing countries. The silent beneficiaries are the traders, speculators and hedge funds, who with their huge resources can and do move the market, or rather the paper market, at -will. That's the price you hear on the TV and the newspaper. Have you ever read news saying 'Oil Producer raises prices'. Definitely not every day of the week.

The Oil producing countries, or most of them, are uncomfortable about such extraordinary rises. Besides they are not necessarily the beneficiaries of the full extent of the market prices.

This extraordinary scare of the world running out of oil or energy is to put in mild words ..Balderdash. I am not about to justify this by streams of graphs and how if China increases their consumption by ... whatever... we will see $100 oil before.....

What is true is that the oil and energy consumption has increased because of China prosperity and that of India and a lot of other nations! Good for the world. China and India's' extraordinary resurgence has kept world inflation down. With their long term planning mentality, it is hard to think that they would throw it all away by creating a world crisis and economic crash which a $70 or a $100 oil would almost certainly instigate.

What is also true that gas guzzling round the world must stop. If one remembers the 'oil shock' of the 70's and 80's and 90's, Oil conservation and wastage was brought to the forefront. Even speed - limits were strictly brought in on the motorways of the world. It was also time to rationalize the price of oil. The price was too low at one time and too high at another. All moves towards alternate energy was set aside as nothing came as cheap as oil. The shale oil and tar sands and and ..... started enthusiastically and as quickly put on the back burner. They are beginning to re-surface. Rightly so. The gas finds have been momentous and before long sufficient transportation facilities will be on line to make a real difference. Wind power, hydroelectric and all other exciting form of energy available will begin to come on stream. This would not have been on the drawing board with a $20 or $30 per barrel oil. The resurgence of Coal is another major factor.

Oil finds and increased production are appearing in various areas of the world . From Azerbaijan, to Kazakhstan to Sudan to Pakistan to equatorial Guinea to Angola , and and ........

What you will also have is hurricanes and terrorist attacks and political changes and the market and paper traders to talk prices up and down the only way to make big money is to ensure movements.. both up and down.

But for the world at large, relax. In less than two weeks the oil has come down from 70's to low 60's. Traders and funds have made some decent profits and.....losses. There will be other events to move them up and down..

Here's my prediction. The Crude Oil price will move more towards $50 than $70 per barrel over the coming period. We must not get confused by the shortage of refining capacity in the U.S.A. It's a different issue altogether and for discussion at another time.

What we have to hope is that the world takes notice of wastage as they did in the 70's. UK and Mayor Livingstone of London have the right approach. The tax on petrol sold in UK is some 300% of the price of oil. And the 'congestion' fee to go to Central London has gone up from L 5 to L8 to discourage people to use cars at will. Go to a petrol station in Karachi...there are more cars cueing at the CNG gas side ...there no cueing at the petrol side. Good thinking by whoever does that in Pakistan.