I'm not really a conspiracy kind of guy, but I was thinking about the Senate report and oil.

As we know, the gulf between the recent Senate report and the oil industry response to the report is bigger than the Persian Gulf.

Let's just suppose for a moment that the Senate and the CIA are staying true to form in their ability to predict world events. Both were unable to predict events such as: Recent nuclear tests, recent rocket launches, recent embassy bombings, the collapse of currency markets, the collapse of previous global super powers...little things like that.

Laboratory tests have shown that the mere mention of the words "Senate" or the "CIA" in the same sentence with the phrase "informed opinion" can induce uncontrollable fits of laughter in 72.4% of the population. I believe this is a Gartner Group statistic. Ironically, this 72.4% statistic is exactlythe same percent of people who swear under oath that they neither voted for, nor had sex with President Clinton.

Just two months ago, distinguished members of the Senate and the House of Representatives of the United State of America were giggling like young White House interns during the 27.35 seconds of time President Clinton allocated to the topic of y2k (which may have been way too time for what is now called "...one of the greatest threats to our nation..." by the giggling interns, I mean the distinguished members of congress).

Why this change? What's going on here? The big, numero uno, "Oh boy, we're in trouble now..." reason seems to be oil.

The oil industry has responded that the Senate report is using outdated information from waaay back in the old days... 12 weeks or so ago. And, by golly we're almost finished (again).

Anyway, I started thinking about commodities and the fact that no other commodity has a "cartel." I have never heard of a coffee cartel, or a spring wheat cartel, or a frozen orange juice cartel. And for the life of me, I could not remember the last time the world sent a coalition of armed combatants to expel a dictator that threatened the world's supply of pork bellies. I couldn't even remember any worldwide aluminum embargos.

If I say "embargo" you probably (72.4% chance...Gartner Group) think "oil." The oil cartel is the only cartel that has ever tried to hold the world hostage. But wait, there's more (you also get the ginsu knives)...the oil industry has been sucking wind for quite a while at $10-$12 per barrel.

So here's what I came up with:

The Senate and the CIA together couldn't predict yesterdays weather. The oil industry is probably in better shape than the real threatened industry -- Pork bellies. The oil industry understands that if they disagree with the Senate, the Senate will, will, will...hold more hearings! And while the Senators and the oil industry P.R. guys (don't forget The Gartner Group) are bickering, the oil industry and OPEC are hopingthey don't notice that remediation work is slowing down. The trick is to time this thing so 2 or 3 months of oil shortages next year brings the price up to $250-$350 per barrel where the oil guys think it belongs. Then, and only then, does the oil slowly start to ooze again.

I think there's about a 72.4% chance that this is the real story. I was hoping Morgan could shed some light on this and what's going on in the wonderful world of oil. Are you guys going to deliver?

-- PNG (png@gol.cm), March 08, 1999

Answers

Something has been shaking up oil prices the last couple of weeks. It was sitting in the $11.00 - $12.00 US per barrel range for a while. Right now it's about $13.75 and hit $14.00 for a couple of minutes earlier this morning.

The reality is that the west have prospered partly at least due to the pillaging of resources at ridiculously low prices. Many commodities are trading at historically low prices. The pendulum will swing and we better get used to paying fair prices again.

I personally hope oil goes up to $25.00 to $30.00 per barrel. That would still only put it back to where it was a few years ago taking inflation into account.

-- Craig (craig@ccinet.ab.ca), March 08, 1999.

But Japan, Taiwan, Korea, and Singapore (?) are importers of oil- doesn't an oil price rise kill their recovery? Or is there a recovery to kill yet? The cartel (OPEC is not the whole group) splits across national boundaries - even if Russia is considered a single state.

UK, Venezula, parts of Russia, parts of US (TX, CA, AK and OK, and LA) are helped, the Northeast and Midwest are killed. Canada? (Parts good, parts wounded) Mexico - helped overall, they export a lot.

Watch gold prices - they are historically inversely related to oil prices.

-- Robert A. Cook, P.E. (Kennesaw, GA) (cook.r@csaatl.com), March 08, 1999.

Directly related - not inversely.

-- Robert A. Cook, P.E. (Kennesaw, GA) (cook.r@csaatl.com), March 08, 1999.

PNG: Interesting you brought this up. Since you're the only Japan- based regular on the forum, can you comment on the effect higher oil prices would have on Japan -- which imports ALL of its oil -- and other Far East nations? I just read that Japan's banks have *promised* to post profits at year-end. Wouldn't higher oil prices send that idea into the dumper (not that it probably isnt already).

-- Cash (cash@andcarry.com), March 08, 1999.

PNG,

>brings the price up to $250-$350 per barrel where the oil guys think it belongs

A country that still has windfall profits taxes on oil won't let prices rise _that_ high.

-- No Spam Please (No_Spam_Please@anon_ymous.com), March 08, 1999.

PNG, Good points.

Also, assuming the Cartels banks can process their monetary transactions, they have functioning maritime shipping and other forms of transportation operational, and that their desalinization plants work, they might make a tidy profit.

Otherwise maybe we can swap them ... Water for Oil.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), March 08, 1999.

PNG,

I'm not sure I'd wear the implied, exalted mantle of "expert" too well, but thanks anyway - I know a little about the oil industry, the same way I know very little about the mining industry, as our company is a vendor to both.

Agree with almost everything you say (pork belly cartel? rotflmao!) But conspiracy theories? A recent University of Wassamatta study revealed that 93.4% of all conspiracy theories are bunk, but only in the scientific context of the term.

Oil companies slowing up remediation efforts in order to create a shortage? Nah, too counter-productive. If things go to potty, it just wouldn't do for a company to have intentionally delayed its y2k work, only to be sucking hind tit as its competitors rush to provide oil at 18-20-30 $/barrel, post-2000. Try this instead: oil companies and oil producing nations may create a perception of shortages through some good media manipulation (not hard to do at all), watching prices zoom right back up, and recouping the losses incurred during the 98-99 bloodbath. Maybe, maybe not.

I think we're ascribing too much raw power to a group of nations/companies who may and frequently do have conflicting agendas. I mean, Opec meetings are such sincere displays of camaraderie and fraternite', are they not? Not! After all, Opec is so effective at price-fixing, right? And Opec members never, never cheat on production quotas, by Jove!

I don't buy into the omnipotent power of the "big oil companies" either - Sure, oilco execs wield tremendous power, and dine with heads of state - and so do Bill Gates and Scott McNealy. They also get royally shafted occasionally. Remember Chevron's ignominious exit from Sudan? Big oilco's also have to step smartly around the nimbler independents, who can and sometimes do score big: anyone hear of a little company called Louisiana Remediation? Tiny tiny company. They have an exclusive contract with the Islands of Sao Tome and Principe, off West Africa, for exploration of their offshore acreage. And Mobil is heavily a-courting LR for a share of the pie......

Having said all that, I've previously expressed the hope that oil prices do go up to $25 or $30 a barrel - oh, happy days are here again!!! (at least for yours truly - being terribly selfish here). I'll follow up with a prediction: there's very good chance they might, maybe 72.4%. From what I see, most parastatals are going to be OK with remediation, most integrated or independent producers (the Shells, Marathons, Canoxy, etc.) are also going to be fine (and before I get forcefully reminded by other forum denizens, that includes tankers, and pipelines, and gathering centers, and offshore platforms, and scada, and so on - mainly OK), but there are going to be enough glitches and foulups to at least create a perception of supply interruptions - remember 1979, the second oil shock?. There was no embargo or any real decrease in production, but up the oil prices went.

The only producer I can think of that could face problems is Iran. They are only country not to have significant Western involvement in the upstream oil extraction and delivery systems. Only recently have companies like Total and Agip been allowed back into development. And troubles with Iran was what started the shocks in 1979....

I'll add a couple more points, before I get too long winded and put everybody to sleep. The world is awash in oil.... gobs and gobs of it. With advanced seismic software, enhanced recovery, better reservoir maintenance, etc etc, proven reserves are rising all the time. If you don't believe me, try any of the oil sites and click the new "new discoveries" section. Exxon, in JV's with Russian companies, have discovered giant oil and gas fields off the Sakhalin peninsula. Nearest customers? Japan and Korea (aside: I bet the Japanese are now more pissed off than ever at losing the Kurile islands during WWII). With new oil and gas finds, plus promising new technologies (anyone heard of 'white' crude?), prices will fall again after spiking up. But that's just a prediction.

Here's another development: the Arab Gulf states see the writing on the wall too. Their bottom-dollar interest is to keep oil prices fairly low. Their own recovery costs are the lowest in the world: stick a pipe in the ground, and you've git yerself a well, Jed (a big 'un). Higher prices spur new exploration in heretofore hard-to-access locations, like deep offshore West Africa and the landlocked Caspian Basin. Coincidence that Saudi Arabia is talking with 8 American oil majors about investments in gas projects and downstream joint ventures? Coincidence that Kuwait has been also talking about a $7 billion investment in its western fields with other international oil majors? You be the judge.

I said that 93.4% of conspiracy theories are bunk, but there is always a smidgen of truth. After all, what's the use of power if it's not used? During the Gulf War, our company was bidding on a large supply contract to a very large Western construction company. The tender came out just after the air war started. Delivery was specified for February 28, 1991. Anyone remember when the land offensive started? Feb 28, wasn't it? At rarefied levels of business and government, you can bet they know more about what's going on then us regular Joe Shmo's, and it doesn't really bother me particularly. (btw, if requested, I'll confirm company names by private e-mail).

I hope I've answered your question. I'm not sure what's so bad about an ineffective oil cartel. The day that someone figures out how to run a car on orange juice, maybe we'll have an ineffective frozen orange juice cartel as well.

And for the record, I never voted for or had sex with President Clinton.

Cheers,

-- Morgan (morgan96@netscape.net), March 09, 1999.