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Need for a long-term look at energy prices
I'm not sure I can talk enough about how ridiculous it is that investors continue to be swayed by every political tussle and storm front.
- By Leah Bower, Special to Gulf News
- Published: 00:07 July 22, 2008
I know many people are hoping that last week's dramatic dip in the price of oil is the correction that analysts and industry insiders have been predicting would happen back before we even passed $100 per barrel of crude.
Sure, there seems to be some cooling of demand as economies in China and the US start to lose some steam. There was also some hope that tensions between the US and Iran would ease. After all, oil prices plummeted for a fourth consecutive day on Friday, marking the largest weekly drop in more than three years.
But a new week has dawned, and it looks like we are back where we started. Iran, the fourth-largest oil producer in the world, has rebuffed demands to bring a halt to its nuclear research programme. Another big storm is moving into the Gulf of Mexico and towards the coast of Texas, where 2005 hurricanes wreaked havoc with production and refining facilities.
And lo and behold, up goes the price of oil again.
What concerns me is that many news outlets seem to be taking a very short term view of oil price movement. It reminds me of dieters who weigh themselves twice a day, rejoicing in each half pound lost in the morning and dropping into a depression over the half pound gained in the evening.
Apart from the general feeling that speculative investment is driving prices - which is probably true - I don't see enough discussion about how much oil is actually available to meet demands. Nor do I see anyone talking very much about long-term political projections or refining versus production capacity.
I'm not sure I can talk enough about how ridiculous it is that investors continue to be swayed by every political tussle and storm front.
But we need to be mindful of the factors that are causing that speculation.
Sure, ongoing political instability in Africa, South America and the Middle East is going to cause a price hike in oil and natural gas. It also follows that hurricanes that wreck oil platforms or bad economic news will affect prices.
But these factors impact energy prices over the long term, a fact that a lot of investors seem oblivious to.
Heck, a lot of journalists seem oblivious to it too, if the number of stories I read last week trumpeting how oil prices were finally correcting themselves was any indication.
Of course, there are other factors driving the price of oil, namely the ongoing fall if the dollar's value.
But it is the roller-coaster reporting and investing that continues to drive me crazy.
Downward prices
For now, it is looking like economic cooling will actually start putting some downward pressure on oil and gas prices.
Analysts have been predicting this would happen - eventually - since oil hit that $100 per barrel mark. The once red-hot Chinese economy is finally feeling the pinch of record prices and the US is perched on the brink of recession, thanks to the ongoing mortgage crisis. Even the Organisation of Petroleum Exporting Countries (Opec) has steadily expressed concern that high prices would cause a sharp dip in demand.
Sharp, however, doesn't mean overnight.
The American Petroleum Institute's monthly report shows a decrease in demand across the board with deliveries of all oil products in the first half of 2008 down three per cent over the same period last year.
But we're looking at year-on-year figures here, not week-to-week.
It is vital, especially with prices so high, that we start taking a longer view of where the market is headed and why, rather that proclaiming the sky is falling with each new headline.
The writer is a freelance journalist based in Alaska, USA.
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