Oil Qaeda

Why did the CEOs of Exxon-Mobil and Royal Dutch Shell both say, just last month, that US$70 oil is not supported by industry fundamnetals?

This was reported by Ng Weng Hoong, editor of www.energyasia.com, in The Straits Times, Friday October 19 2007, on why: "High oil prices are here to stay."

http://www.straitstimes.com/Free/Story/STIStory_168332.html

I'm going to assume that the two CEOs are well-informed on the oil industry's fundamentals, so today's US$88 oil prices must include a risk premium to cover uncertainties. To summarise, although the article is worth reading, Ng says that these uncertainties are

1. Supply/demand imbalances; especially predicting demand from China, India and Brazil.
   
2. Politics that prevents oil-producers from responding rapidly to higher prices.

The article does not expand on the second point and I'll take a stab at it here. American foreign policies, dominated by the "war on terror" makes it difficult for the American oil industry to participate in exploration and production-sharing opportunities arising from higher prices. This applies not just to purchasing concessions but the nitty-gritty engineering of exploration and production where American know-how and equipment is excellent.

The uncertainties are real but the premiums charged depend on perceptions of the power and influence of Al Qaeda, or, more accurately, Salafi Jihadists. Since power and influence are themselves perceptions, these premiums are perceptions of perceptions. No wonder I'm confused but at least I'm in good company.

Bottom line? Try to use less energy, especially when driving. It's boring but make lists of errends and shopping and try to combine them on each journey.