Why Oil Has Risen From $75 To $100 In Six Weeks

  • Print
  1. The lack of productive diplomacy between the U.S. and Middle Eastern nations has frightened some former “friends” in the oil-producing world, and turned them at best neutral, and at worst, cold to America. They have watched fellow Arab regimes tumble in Tunisia, Egypt, and Libya and witnessed the uncertain role of the U.S. against Qaddafi as a peripheral – and not a leading – effort. Should their regimes come under attack, they wonder whether Washington will stand with them or against them. In recent months, Saudi Arabia has quietly reduced its crude output, even as prices have risen. Perhaps this has something to do with the belief that the U.S. will not step forward in case of trouble, even though the Saudis are major oil suppliers.
  2. Iran’s aggressive behavior in the region has made the practice of stockpiling some oil a wise bet.
  3. Global investors read weather reports. Now that the season of revolt-discouraging 130 degree temperatures have passed, investors wonder about a possible resumption of the “Arab Spring” and further instability in the region.
  4. Canada is America’s largest supplier of oil. Yet, plans for Canadian pipelines to carry more oil south through U.S. territory are running afoul of Yankee politics and environmentalist objections. President Obama recently delayed the start of the Keystone Pipeline from Canada's oil sands, at least until after the 2012 election. The project would have created 100,000 direct and indirect jobs in the U.S. Although pipeline operators boast of a remarkably safe and clean history, they have still not squelched the fears or ideology of environmental groups. Environmentalists, along with NIMBY (“Not In My Back Yard”) protestors, have effectively delayed the job-creating, economy-stimulating, and national security-enhancing effects that more domestic oil and gas production would create in the U.S. and Canada.
  5. Failure to effectively exploit existing alternative resources. Here’s one glaring example of what we consider to be fuel failure folly. Why isn’t the U.S. substituting clean-burning natural gas instead of oil in the transportation sector? The country could easily utilize the natural gas surplus to power trucks and superbly save on gasoline and oil consumption. Oil prices will continue to rise as long as we fail to use available natural gas in this way. Here’s a missing opportunity for U.S. and Canada oil companies to export production and make much more money than they do by selling into the domestic markets.
  6. An oil glut is about to become history. Readers may recall this past summer, we discussed that there was a glut of oil in the U.S. midcontinent. Because of this glut, U.S. West Texas Intermediate (WTI) oil futures which are based on light oil at Cushing Oklahoma traded at prices 20 to 25 percent less than light crude around the globe. On November 16th, Enbridge Energy purchased Conoco Oil’s 50 percent interest in the large crude oil pipeline, Seaway, which currently transports oil from the Gulf of Mexico fields to the Cushing, Oklahoma storage facilities. Enbridge and their new partner, Enterprise Products (who owns the other 50 percent of the pipeline) have agreed to reverse direction of the oil. This means that by the end of the 2nd quarter of 2012 hundreds of thousands of barrels per day will be heading towards the coastal region’s higher prices. Accordingly, on November 17th, Oklahoma prices are only 9 percent lower than light crude around the globe.
Tony Danaher

CLICK HERE to subscribe to the free weekly Best of Financial Sense Newsletter .

About Monty Guild