On Monday this corner posted "Trouble Ahead! Iran and Saudi Arabia the "Oil" Brothers." The post was a rumination on the impact the June 8 OPEC meeting in Vienna will reflect as result of the ascendency of Mahmoud Ahmadinejad to the Presidency not only of Iran but as the President of OPEC by virtue of his assuming the post of Iran's oil minister while Iran held the rotating presidency of OPEC. An event that was "setting the stage for a highly politicized gathering of the cartel," according to the Financial Times. It became common consensus that Ahmadinejad would use his OPEC prominence not only to push for higher prices to shore up Iran's flagging economy, but to grandstand, thereby consolidating his position at home.
Shortly thereafter however, poof, we learned that Mahmoud Ahmadinejad would not participate in the upcoming OPEC meeting. The report thereby undercut a statement last week by a senior government official that Ahmadinejad would chair the next OPEC meeting in his capacity as the country's caretaker oil minister. It appears that the Guardian Council, Iran's constitutional watchdog body, had ruled that Ahmadinejad could not also serve in the oil ministry role.
But then, lo and behold, another bit of news trickled out of Tehran. The Financial Times reported that a senior Iranian government official acknowledged that there exists a "global shortage in the supply of crude" and promised (I repeat the word "promised") that OPEC will keep the market in balance. This from Mohammad Ali Khatabi, an OPEC governor who serves as Iran's permanent representative to the organization. He went on "... OPEC will continue its onerous duty, which is to create balance in the market."
This is a fundamental change in tone and tune. Is it the beginnings of the stirrings of a more liberal and responsible Iran? That would be a most pleasant surprise. Now if only one could get the Saudis similarly responsive in deed rather than in vacuous word, all would benefit.
Raymond J. Learsy: Saudi Arabia -- The New York Times and All the News Not Fit to Print
Part of that is probably due to the fact that he is term limited. Some of these moves were done to elevate Ahmadinejad cronies. The clerics have no desire for his party/clique to hold the presidency more than 8 years establishing a rival power structure to their own. It appears that the clerics have re-affirmed that oil policy is their domain, not the president's. This power struggle will be interesting. The clerics can not get more hardline than Ahmadinejad so they will have to tack to the other direction wherever that leads. It appears both sides are somewhat in a trap of their own design. Welcome to the mortal world Ayatollah, it's still muddy out here. Don't get any on your dress.
- The hourly "spot market" where oil is traded on a delivery now basis.
- The monthly "futures market" where oil is traded for delivery at some future date (one to six months out).
The Futures market and the spot market prices converge when the futures date equals the spot date.
The goal of the futures market is to moderate wide swings in eh spot market.
The price you typically see on the news is NOT the spot market that can vary wildly on any given day, but the futures market, where people "bet" on what the price will be in the future.
As a result, things like a Libya civil war causes the traders to get nervous about how much oil will be available, not today, but in the future.
This is why we can have a large current supply of oil and a declining spot market price, and at the same time have an increasing futures market price. The fear is that all the oil looking for a buyer right this minute can rapidly turn into a shortage over night.
Right now there are some nice bargains on the spot market, but they are unlikely to last.
BUT ...
That cost trillions and everyone is going bonkers about the debt.
BTW - cutting the US military by 75% AND STOPPING ALL WARS might be a good way to pay for the rebuilding.