The rising value of an increasingly scarce resource is a form of monopoly rent, and a future permanent crude-oil regime of $50 per barrel (or higher) would transfer at least $1 trillion per decade from consumers to oil producers. In plain English, this would be the greatest robbery by a rentier elite in world history. Someday, Enron may seem like the equivalent of a liquor store hold-up by comparison.Contrary to Davis's view, it is probably the case that the glaring lack of coherent foreign policy-making has made Washington fight two major oil wars at the same time, against the interests of Washington's governing elite themselves if not against those of oil men:
The oilmen in the White House, of course, have the best view of the lush terrain on the far side of Hubbert's peak. No wonder, then, that a map of the 'war against terrorism' corresponds with such uncanny accuracy to the geography of oil fields and proposed pipelines. From Kazakhstan to Ecuador, American combat boots are sticky with oil. ("The View from Hubbert's Peak," May 26, 2004)
The oil saga this year has its roots in the Venezuelan oil strike that took place in the winter of 2002-2003 and removed 200 million barrels of crude oil and gasoline from the world market.Matthew Robinson of Reuters writes that "According to secondary sources, the world's No. 5 oil exporter [Venezuela] is only pumping about 2.5 million to 2.6 million barrels per day (bpd) compared to 3.1 million bpd before the December 2002-January 2003 strike and its official OPEC ceiling of 2.7 million bpd ("Venezuela's OPEC Role Limited by Output, Politics," May 26, 2004). The decline of Venezuela's oil output is in part the result of the Venezuelan oligarchy's own war against the populist politics of Hugo Chávez Frías, but the Venezuelan oligarchy have certainly been materially supported and diplomatically encouraged by Washington at each step -- the April 2002 coup, the December 2002-January 2003 strike, and the ongoing attempt to recall Chávez -- of their dogged campaign to destroy the first Venezuelan government to protect and promote the interests of the Venezuelan masses. Their latest failed attempt to overthrow the Chávez government is reminiscent of CIA shenanigans at the height of the Cold War -- notice the gusano connection:
In response to the strike, the United States made two strategic mistakes. First, it refused to compensate for the drop in supply by releasing oil from the Strategic Petroleum Reserve. (Understandable, given a war on the horizon.) Second, it accepted assurances from Saudi Arabia that the kingdom would increase production to make up for the Venezuelan shortfall.
Missing from the picture? Geography. Venezuelan oil can get to the United States in six days; Saudi oil can take up to two months to make it to American refineries. To complicate matters, Saudi Arabia was slow to increase output, waiting until late January and early February of 2003 to raise production, 45 days after the Venezuelan disruption began. (Edward L. Morse and Nawaf Obaid, New York Times, May 25, 2004)
Venezuelan authorities captured this morning a group of 55 Colombian paramilitaries who were receiving training at a farm nearby Caracas in preparation for attacks on Venezuelan military bases and for a coup d'etat against the government of Hugo Chávez. . . .Now, I'm sure that all these anti-Chávez campaigns on the military, economic, and political fronts "make sense" if Washington's concern is Venezuela and Venezuela alone: after all, what's good for the poor in Venezuela isn't good for the rich either in Venezuela or the United States. It doesn't make any economic sense at all for Washington, though, to fight two major oil wars in Iraq and Venezuela at the same time, when it can't even manage a two-front counterinsurgency war against Sunnis and Shiites in Iraq alone.
The paramilitaries 55 initially captured are part of a larger group of up to 130 men, some of which managed to escape. By Sunday afternoon, authorities managed to capture several others for a total of 71 individuals detained, including two minors. Authorities continue to pursue the irregulars through the mountains around southeastern part of the valley of Caracas.
According to Venezuela’s Defense Minister Jorge Garcia Carneiro, the group's final goal was to overthrow the government. Garcia said that there are Venezuelan retired military officers involved in the plot. The Venezuelan military officers allegedly involved are part of the group of rebels who regularly met at Francia Square in the affluent eastern Caracas neighborhood of Altamira, to give anti-government speeches and make calls to overthrow it. . . .
About 100 of the irregulars are members of the Colombian military reserve, according the authorities' analysis of Colombian documents found in the farm, and according to testimony by some of the men captured. . . .
According to authorities, the property where the paramilitaries were captured belongs to anti-government political leader Robert Alonso. Mr. Alonso, of Cuban origin, is a legal resident of the United States, and creator of the civilian resistance plan called "Guarimba", aimed at toppling the Chavez government and which was first implemented at the end of February in Caracas during the Presidential Summit of the Group of the 15.
Mr. Robert Alonso is one of the leaders of an opposition coalition know as Bloque Democrático (Democratic Block) and he is also tied to the larger Coordinadora Democratica opposition coalition. . . .
Bloodshed predicted by opposition
Venezuelan former President Carlos Andres Perez, who opposes the Chavez government, announced last week through Colombian radio network Caracol that the political opposition to Chavez "is willing to oust him, not through peaceful means but by force". Perez, who lives in exile in the United States, said that he did not believe that Chavez's ouster would spill into a civil war, but that "there will be blood spilled" to oust him. The Colombian radio network Caracol is also owned by media magnate and Chavez opponent Gustavo Cisneros. ("Venezuela Captures Paramilitary Group Seeking to Overthrow Chavez," May 9, 2004)
In his April 16, 1967 "Message to the Tricontinental," Ernesto Che Guevara wrote: "How close we could look into a bright future should two, three or many Vietnams flourish throughout the world with their share of deaths and their immense tragedies, their everyday heroism and their repeated blows against imperialism, impelled to disperse its forces under the sudden attack and the increasing hatred of all peoples of the world!" Add Nigeria's labor unrest, the growing Chinese economy's oil demands, and terrorist attacks in Saudi Arabia to Iraq and Venezuela, and Washington has in fact many oil wars on its hands. We may be closer to the hour of the furnaces than we know, not because Washington has any master plan, pace Davis, but in fact because its contradictory policy-making without a master plan (except the single-minded determination to always attack any gains made by the poor in any nation) has inadvertently helped to initiate more oil wars than it can handle.
-- LOW INVENTORIES, OPEC MARKET MANAGEMENT
Oil companies have sought to become more efficient and free up capital by holding lower stocks. This has given the industry less of a cushion against sudden supply disruptions.
A wave of mergers following 1998-1999's price crash also reduced the number of companies holding inventory. A series of supply disruptions last year -- the war in Iraq, Venezuela's general strike, and ethnic unrest in Nigeria -- cut into stocks.
OPEC, which controls around half the world's exports, has worked hard to stop stocks building, especially in the United States, during periods of seasonally weak demand. Ministers have announced plans to cut production before prices start to weaken, giving refiners no chance to replenish stocks with lower-priced crude or products.
The resulting lack of stock cover leaves refiners more vulnerable to supply disruptions and increases the likelihood of price spikes. This in turn has attracted heavy buying interest from big-money speculative hedge funds.
"OPEC strategy has shaped oil markets into a bullish machine in a tense international environment," said consultants PFC Energy. "This has caught the attention of speculators and hedge funds, who have magnified the current pressures in oil markets."
OPEC policy has helped create the conditions for a sustained price backwardation, pricing physical oil at a premium to future supplies. So refiners are discouraged from holding storage and buy at the last minute.
--POLITICAL TENSIONS IN OIL PRODUCING NATIONS
Political tensions in the Middle East and violence in Iraq have undermined traders' confidence in security of supply from the region, which pumps a third of the world's oil. Iraqi exports, not long back to pre-war volumes, have been hit by sabotage attacks. Traders fear there may be more disruptions in the run-up to the June 30 handover of power.
Traders fear Islamic militants could target oil infrastructure in OPEC's biggest producer Saudi Arabia. Shootings at a Saudi petrochemical plant fostered fears of a larger attack on the kingdom's tightly-protected oil facilities.
The post-September 11 chill in relations between Saudi Arabia and the United States has raised concerns that Riyadh may no longer be willing to act as a guarantor of cheap oil as it did during the 1990s.
"While the Kingdom remains the ultimate guarantor of oil supplies in case of emergency, it has given up its role of price moderator inside OPEC," PFC Energy said.
Venezuelan oil production is still suffering the fall-out of the strike 18 months ago that cut capacity. A possible August referendum on Venezuelan President Hugo Chavez' rule could again destabilise exports from a big U.S. supplier. Civil unrest in OPEC member Nigeria is another flashpoint.
--STRATEGIC RESERVES BUILD
Supply security concerns have spurred many countries to increase strategic inventories, withdrawing supply from an already tight market.
The United States continues to fill its strategic petroleum reserve despite high prices. Other countries including India, South Korea, Taiwan and China are building reserves or plan to start soon.
China's economic expansion has given a dramatic boost to world oil demand, sucking in crude and refined products from all around the world. Unless China's economy overheats, traders expect its fuel demand to keep growing for the next two or three years, encouraging speculative hedge funds to bet that high oil prices are here to stay.
Chinese oil demand looks set to rise about 20 percent in the first half of this year, says the International Energy Agency, on top of 11 pct growth last year.
At the same time, sharper growth in the U.S. economy, which devours a quarter or all world oil, is driving competition between Asia and the U.S. for supplies.
The rate of demand growth has caught forecasters such as the International Energy Agency by surprise. Consumption forecasts have proved far too low, encouraging OPEC to keep supplies even tighter than needed to prevent stocks building.
Higher demand means that a shortage of refining capacity that has plagued the United States for the last four years has now spread to Asia, again leaving the global oil supply system more exposed to disruption.
Environmental regulations are pushing up the price of making fuel, forcing companies to build expensive new facilities and making it harder to ship supplies between regions.
In the United States, individual states demand an array of different gasoline blends. This makes it harder to transport supplies between states and to import supplies from abroad.
Environmental regulations have made it more expensive to build new refineries, and much harder to get the necessary permits.
The United States accounts for about 45 percent of world gasoline consumption. Demand is up because of the growing numbers of low-mileage-per-gallon sports utility vehicles on America's highways.
U.S. gasoline demand drives a growing requirement for high-quality light, low-sulphur crude. China is competing for those grades of oil to meet demand for transportation fuels, lifting the price premium for low sulphur crude. Most of OPEC's crude is heavy and high-sulphur.
Big oil reservoirs are becoming harder to find and more expensive to develop. Many of the oil provinces outside OPEC are mature, which means that finds are now smaller, need more costly technology to develop and fall faster from peak production.
Oil companies have also been cautious on spending since the '97-'98 price crash slashed their share prices and triggered a spate of mergers. They have focused on large-scale projects, which will give them good margins.
Many new ventures are in remote areas, which demand expensive equipment and are more susceptible to delays.
Non-OPEC supply growth outside Russia before the price crash averaged more than one million bpd. Since then it has been negligible.
Forecasts of non-OPEC supply growth, especially when the rebound in Russian production is stripped out, have consistently been overstated.
The increased cost of finding and developing non-OPEC oil has fuelled speculators convictions that oil markets are a good long-term bet. Royal Dutch/Shell's reserves troubles have reinforced the view that oil is becoming harder to find.
In OPEC, which holds around two-thirds of the world's oil reserves, many of the bigger nations either do not allow foreign investment in oil, or have unattractive investment and legal terms.
This has slowed down production capacity growth in OPEC nations, meaning that most are already producing flat out. Only Saudi Arabia holds substantial spare capacity, giving it even more leverage over prices. (Reuters, "Why Oil Prices Are So Strong," May 17, 2004)