By Ian Kilbride*
Bastille Day, the 14th July; a day of celebration and joy in France. Cries of Liberté, Égalité, Fraternité is heard throughout the streets of Montmartre, and a general sense of bonheur prevails across the country. Can you imagine, however, just how well the 14th July 2008 was celebrated in Riyadh, Dallas and Aberdeen? Not because any of them particularly love the French and their sense of freedom, no. Simply because on that day, oil went up to $145 a barrel – its highest price in the last ten years.
Yet like all parties, the music and gluttony had to come to an end, and by Christmas Eve, only five months later, the price was at its lowest in the last ten years, ooh la la $35 per barrel!
The current oil price of around $50 per barrel therefore helps us to see a few home truths about the oil myth, be it oils true value, cost, availability or immediate impact on world economies. Please don’t get me wrong, I am no economist. My son in Grade 11 has forgotten more on this topic than I will ever know, but I do understand common sense, and I have been around, witnessed and at times been the victim of enough manipulation to know it when I see it.
A great deal of commodity prices today are not based simply on good old supply and demand, no. The hedge fund and other speculators have ensured that they are great drivers of the values, that they seek to make fortunes at the everyman’s expense.
When the perception is that the economy is fine, the producers and speculators can drive up the oil price. Governments are happy too, as their tax revenues are linked to this price. We are all sold stories of supply issues, under-capacity and over-demand; clearly it’s all a lie.
ISIS are rampage in Syria and Iraqi, the remainder of Iraqi is in Civil War and maybe now we are finally told turmoil in oil producing nations really means nothing. Their use to justify oil over $100 is a fallacy, the Saudi’s can pump the stuff down to $10 or less a barrel and still make money, so do we really care if it runs out and accelerates the research for other more attractive clean fuels? Well, no!
The interesting thing will be to watch petrol prices and the low oil price impact. I personally say let’s keep oil at $50 or less and stop trying to “spin” that it is bad for the economy, it’s bad for Halliburton and their fracking, it’s bad for “Vlad the Inhaler” (the rather asthmatic Mr Putin) but low oil prices are about as bad for our economy as cream is on a scone.
Nett consumers of oil, like SA, can only benefit from this low price whatever its cause, and although it may be partly aimed at killing off research into more expensive alternatives, or simply killing off the Putin regime, it will give our economy a much needed fill up as we also suffer the result of appalling governmental planning for our electricity requirements.
So everybody, enjoy the low oil price and cheaper fuel, and light another candle!
*Ian Kilbride is the Chairman of Warwick Wealth and the Spirit Foundation, (formally known as the KIDS Foundation). See all of his articles on www.iankilbride.com and every week on BizNews.com