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Libyan Unrest and Gas Prices Here

Friday, February 25, 2011

Gas Prices Continue To Rise, Inching Up Over Last Two Weeks (Getty)

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on The Brian Lehrer ShowSteven LeVine of "The Oil and the Glory" blog at Foreign Policy, and Dan Dicker author of Oil's Endless Bid: Taming the Unreliable Price of Oil to Secure Our Economy, discuss the unrest in the Middle East and its relationship to the soaring price of oil and the rising price of gas.

Oil prices have been on a rollercoaster ride this week, peaking at $120 per barrel and settling at about $110. For obvious reasons, it's tempting to blame this spike on the recent, widespread unrest that has shaken the Middle East.

However, the disorder in Libya has not forced the country to cut off its supplies. Companies may be lowering production, but the United States only gets about four percent of its oil from Libya. A Saudi promise to fill the gap should provide relief, yet prices climb regardless.

One would think that chaos and regime change would make the foundation of the world's energy infrastructure more difficult to move. If that's not the case, why is it getting more expensive? Dan Dicker said that it's a mistake to think oil prices aren't a direct result of people flooding the streets of Arab capitals; they're being driven primarily by anxious western cash flooding the market.

[Prices] are not being moved by fundamentals. Supply is ample...What you have instead is a price being driven merely by the amount of money that flows into oil as an asset class, which in fact the oil market, or any commodity market, was never intended to be — an investment, a bet or a wager. In fact, it's become that, so when these geopolitical things happen you have this flood of money into a marketplace that was never designed to accept it, and you have an enormous spike in prices.

The oil market occupies a special place in the global economy because there's no escaping the influence of investors, Dicker said.

Everyone, whether they're engaged in the market or not, is unfortunately tied to energy. Everything we do in our lives is inevitably tied to the price of energy. If you're betting or investing on a house or the stock market, you take the risk and the chances; but lots of people out there don't have a bet down on oil, and they're getting hosed by the prices at the pumps.

Investment revved up in advance of turmoil. The supply situation is stable for now, but Steve LeVine said that everyone expects it won't be in the near future, which will make oil shares much more valuable for those holding them. That's causing prices to jump, and we haven't seen the last of it. 

The market is still concerned about what comes next. Are we going to see something happen in Saudi Arabia? Bahrain? Algeria is very important. If we do, you're going to see that same kind of frenzy return.

Dicker and LeVine agreed: it's all about Saudi Arabia. Unrest in Libya, Bahrain, Tunisia — price spikes don't come from these events in and of themselves, but from fear that the same thing could happen to the world's flagship petroleum producer. Those fears are not entirely unfounded, according to LeVine.

Saudi Arabia has said that while Egypt has trouble, while Libya is up in flames, and Tunisia and Bahrain, we're going to have no unrest. Then King Abdullah announced, 'I'm going to give my people $36 billion in wage increases and debt forgiveness.' The way the market saw this was, wait a second, if you're so stable, why is the king buying off his people? That's changed perceptions.

LeVine pointed back to Libya, where the nation's refineries are being compromised by looting and sabotage. Sure, it's only four percent of the United States' supply, but Libya's example proves that oil installations are obvious targets in times of upheaval, in any country.

"It has more to do with how the contagion might or might not spread to Saudi Arabia," said Dan Dicker, speaking about the logic behind the price jump.

You might say that the unrest in the Middle East has fueled unrest in the global markets; everyone on the outside looking in is nervous. But Dicker said that we can't characterize the careening oil prices as the result of wealthy investors' greed. When you dig a little deeper, you realize that much of the money being dumped into oil is in the name of pensions and retirement funds for normal, non-market savvy citizens. Our own money is killing us at the pump.

If we really want to see the villains, a lot of them we could find by looking in the mirror...The dumb money that begins to fuel that kind of speculative drive really comes from us, who want to have, instead of just paper assets, we want hard assets, and we rush into these things and we listen to the people selling these products who want to make fees off of commodity investments. In many ways it's a shared responsibility. It's not just the Goldman Sachs or Morgan Stanleys, although they do bear a tremendous responsibility. But we do too.

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Comments [13]

j from bklyn

interesting article that levine should've known about, or at least admitted to knowning about information wise:
http://news.yahoo.com/s/ap/20110225/ap_en_ot/us_oscars_gasland

Industry tried to get doc disqualified from Oscars
ALLENTOWN, Pa. – The natural gas industry has spent months attacking the documentary "Gasland" as a deeply flawed piece of propaganda. After it was nominated for an Oscar, an industry-sponsored PR group asked the Academy of Motion Picture Arts and Sciences to reconsider the film's eligibility.

The reply: Let Oscar voters have their say.

you can read the rest at the link.

Feb. 25 2011 03:10 PM
thatgirl from manhattan

surprise surprise, levine's hot for natural gas hydrofracturing. he stopped short of saying that it's all about our "energy independence" explicitly, but that old saw was there. what he didn't say was that the practice is just another way to make huge profit for the same industry profiting off of oil and its subsidies here...only to see that gas traded on the worldwide market.

don't buy it, new yorkers. get the facts via your neighbors at nyh2o.org.

Feb. 25 2011 11:29 AM
Lou Viola from Brooklyn

Perhaps a follow up question to Dan Dicker...just how much poisoning of land and underground potable water is acceptable to him to justify "fracking?" An answer reflecting even a small amount raises the question of how much is gas harvested in this manner worth it? Let's get people to state positions on acceptable levels of poisoning the land.

Feb. 25 2011 11:27 AM
David from SoHo

There's propaganda, and then there's pure facts, and the facts point to hydraulic fracturing being too dangerous and risky for New York, let alone the entire country.

Save our water!

Feb. 25 2011 11:24 AM
h l from brooklyn

Breaking News: more killings today in libya. Hundreds of foreign mercenaries as well as troops have opened fire on protesters. http://www.presstv.ir/detail/166999.html

it's not over.

Feb. 25 2011 11:19 AM
CHina Libya

Vietnamese subcontractors for Chinese companies being evacuated from Libya:

http://www.thanhniennews.com/2010/Pages/20110225161410.aspx

Feb. 25 2011 11:16 AM

Consumers want more oil.
it’s the free market!

Feb. 25 2011 11:14 AM
Daniel Westcott from Chicago

Don't high oil prices actually do us some good as a country? It creates an economic incentive to buy products that were produced locally. It puts an equalizing effect on local farm's produce, allowing it to compete with imported produce. And it incentivizes public transit.

Feb. 25 2011 11:12 AM
Tony Bruguier

Does Saudi Arabia have enough oil?

The US Dep. of State is not sure about it:

http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

What do you reckon?

Feb. 25 2011 11:10 AM

why shouldn't the oil corps get as much money as they can for the drug called oil.
the corps owe it to the shareholders
greed is good.

Feb. 25 2011 11:10 AM
Tony Bruguier

Does Saudi Arabia have enough oil?

The US Dep. of State is not sure about it:

http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks

What do you reckon?

Feb. 25 2011 11:10 AM
Liam from East Elmhurst

The corporate rich are running to their speed-dialers to make sure they don't get screwed.
The rest of us-hold your noses, because we are going under!

Vote Republican-it makes suffering briefer!
Vote Democrap-it makes suffering seem more sensitive to the needs of the community (then, ends the same.).
Vote Bloomberg! Peter Stuyvesant rocks, man!

Feb. 25 2011 11:02 AM
superf88

Effect on Chinese economy? Politics?

Feb. 25 2011 10:32 AM

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