Oil Price May Fall 30% After U.S, Iraq Polls Conclude (Update1)
Sept. 7 (Bloomberg) -- Crude oil prices may fall more than 30 percent in the next four months once elections are concluded in the U.S. and Iraq, reducing security concerns, OPEC President Purnomo Yusgiantoro said.
Record prices of more than $48 a barrel last month in New York were caused by ``geo-political threats,'' which would recede with the U.S. presidential vote, Iraq's planned transition to democracy and a resolution of a dispute between Russia's government and OAO Yukos Oil Co., Purnomo said.
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Clearly, what are termed 'geo-political threats' are those caused by Bush's bellicose policies in the middle east. These would only recede if Kerry were to be elected. (Sure Kerry will keep troops in Iraq for a while, although with the mounting casualty rate it's not even certain for how long he could do that. More importantly, he's less likely to be as threatening to Iran and Syria.)
What needs to be stressed is the necessity of big oil for what is euphemistically called 'stability'. What they're really talking about is the removal of uncertainty. One has to remember that investments in major petroleum or natural gas projects run into the HUNDREDS OF MILLIONS or BILLIONS of dollars. No company can afford to make these kind of investments without a fair amount of certainty that their investments won't be physically attacked and that their operations will be allowed to function normally.
This explains big oil's comfort with a Chavez victory in last month's referendum. It also puts a lie to a lot of the conspiracy-mongering amongst the left, that looks for oil as the reason behind all cases of civil strife in the world. As Doug so aptly pointed out, what oil company would plan to lay large pipelines in a country such as Afghanistan, that is basically run by tribal warlords ?
From an economic perspective, what's interesting about this comment from OPEC is the implied concern that it shows with high oil prices (although, of course, on an infaltion-adjusted basis, they're still a fair amount lower than they've been on other occasions in the past.) While one might naturally assume that OPEC would be thrilled with the excess profits that are rolling (dare I use the petroleum-related term 'sliding') in, are they perhaps getting concerned that a prolonged period of current prices could cause a global economic slowdown ? Are they already seeing early warning signs of this ?
On a related, but tangential note, it is curious that today the Saudis cut prices on October-loading crude that is destined for both Europe and the U.S. Today also happens to be the day when Sen.Bob Graham's book, Intelligence Matters, was published, where he states that "two of the Sept. 11, 2001, hijackers had a support network in the United States that included agents of the Saudi government, and that the Bush administration and FBI blocked a congressional investigation into that relationship". In addition, he states that "some details of the financial support from Saudi Arabia were in the 27 pages of the congressional inquiry's final report that were blocked from release by the administration, despite the pleas of leaders of both parties on the House and Senate intelligence committees". These statements can not be so easily chalked up to 'crazy conspiracists', since Graham himself had access to classifed information, as he was chairman of that very same Senate Intelligence Committee from June 2001 through the buildup to the Iraq war. (He voted against against the war resolution in October 2002.)
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