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Georges Ugeux Headshot

Don't Worry About the Oil Prices

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The crass ignorance of the realities in the Middle East and the exploitation of that ignorance by speculators compounded by the mediatization of the insurrections and riots could give the impression that we are facing an oil crisis. Even the otherwise well-informed New York Times has a first page article on the threat of the oil prices on the US economy. It goes as far as talking about "a blow to consumers".

Let's look at the reality.

Libya is negligible, and it is -so far-- the only oil producing country involved in the turmoil in the Middle East. Libya exports 1.4 million barrels/day. That represents less than 2% of world production. Its reserves represent at best 3% of the world reserves. Today, less than 50% of the world's oil supply comes from the Middle East, and put together, Russia and Saudi Arabia represent 25%. Saudi Arabia and Abu Dhabi have announced that they would make up for the lack of Libyan oil to avoid disturbances.

Most oil contracts are at fixed price formulas based on long term parameters. The part that is trading market is less than 10% of all oil supply. So why would we have an increase of the price at the pump? Because oil companies specialize in consumer racketeering, as do the banks. The impact on the gas prices should not exceed 1%. Instead, we now are suffering a 10% increase.

This works beautifully because speculators have also managed to trade oil at outrageous prices that have nothing to do with the economy. Many of those traders are not independent: they collude with oil companies. Since we have the bad souvenir of the previous oil price hike, we believe that it is back to high levels. Our ignorance of the economic realities makes us the ideal target of disinformation.

We, the consumers, are the victims of these movements, and even the New York Times believes these rumors. They also believe that this increases the influence of Iran while it is obvious that the Tunisian or Egyptian Shiites are much closer to the Turkish model than to the Iranian model.

It is time we seriously investigate commodities and food speculation. The latter is threatening the social equilibrium of our world. Food prices increase for natural reasons, but the current levels are due to speculative movements where traders actually warehouse food products that should be sold to the populations who need them.

Is this the world we believe in?

***Above numbers are produced by Wikipedia who is using the CIA and the US Energy Information Agency and are corroborated by the publications of the OPEC.