Oil Prices Evolution or Revolution?

Posted on 3 de marzo de 2012

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By: Franco D´Orazio P.

Early on 2007 we concluded the last chapter of the book on Economic Analysis included in this Blog, in which we outlined the trajectory that would follow, according to our judgment, the crude oil prices in the international market, visualizing one out of three possible scenes, which seems to be severe at that epoch, but apparently, it seems that they are materializing nowadays. That scene identified with the icon (iii) in that text, would assume that the definitive descent of the worldwide hydrocarbon remaining resources would be occurring from that historical moment on. Using the forecasts of this fundamental parameter of the oil technical area and supposing other factors of invariable environments, it was possible to explain the phenomena observed in those years, as per which, the oil prices were going up continuously, seasoned by adverse geopolitical situations at certain countries of the Middle East, but under supposed normal worldwide market conditions in as much as what is referred to the supplying-consumption balance.

 Under these specific considerations, the estimated tradition of the oil prices extrapolated for sub-sequent’s years after 2006, indicated a sustained level of crude oil prices in the hands of the final consumer, over US$ 100.oo per barrel. What gives support to that raised third scenario is the following observation, quote: “……which would promote the occurrency of what we would hereby denominate reverse cycles, that is, those cycles in which the crude oil reaches and maintains high level prices, in a sustainable manner in the time, without having abrupt descending variations, due to the only fact of worldwide lack of available resources (since the consumed volumes would not have a real replacement at the required moment), which would not give rise to higher level of those prices, due to associated economic, financial and/or technical reasons …… but, for instance, in the case that some exogenous events of a geopolitics nature happen, then the prices might be even more expensive for the different crude oils usable in the world oil market, without occurring neither weakness of the cycle nor exhaustion of the prices in a foreseen term”…..unquote.

 And those exogenous events were supposed to occur, even though nobody imagined that they would complicate things in that sensitive mezzo eastern zone, since on the 6th day of the month of September of that same year 2007, the Israeli air force would perform, for the second time in their history, an air attack to their nuclear installations in their area, in order to destroy a plant located at Syria, specifically at Al-Kibar, Dayr az-Zawr, in the Syrian-Turkish frontier zone, because they suspect that Syrian were preparing an atomic energy military program, using North Korean technologies. This nuclear plant was bombed uncompassionately by bomber airplanes re-equipped with auxiliary fuel tanks, to increase the flight autonomy and facilitate their return to the base once they have achieved their objectives, which according to the International Organization of Atomic Energy (IOAE) were achieved totally, up to the point that the Bashar al-Asad government, even up to date, deny their existence eventhough they were bombed. Those external fuel tanks were thrown away on Turkish territory and the government of Premier Erdogan still waits for a reasonable explanation from Tel-Aviv.

 This fact removed the energetic market foundations without causing them major momentarily alterations. Truly, the first experience of this kind was used by the same Israeli on the evening of June 6th, 1981 against the Osirak nuclear central, constructed using principally French technology, under the Saddan Hussein regime at Irak. Such plant was located in the neighborhood of Al-Tuweitha city, at the North of Bagdad, and in that attack, the Air Force successfully rehearsed the trick of flying their powerful F15 and F16 fighter bombers in close formation, multi-level, that in plane at a highly height simulated among all, the shape of a commercial jumbo Boeing 707 flying the zone, using the air freedom of an Irish airline. Osirak was totally destructed and fighting airplanes happily returned to their base overflying Jordan air space, and CIA did not realize about such a matter, eventhough Israeli had used photograph material from the USA spying satellites to plan the bombing. Previously and during those air attacks, one dozen of North Korean Scientifics at Syria and some others Iranian abroad as in their own territory, died in a suspicious manner, many of them involved in attacks which were endorsed to Mossad by most skeptical political factors and to his performer long arm.

 This brief historic summary is pertinent to be refreshed due to the geopolitical events that we observed in the same mezzo eastern area, since the end of the last year. ¿Is there any similarity with the performance of the Iranian nuclear program developed at present? Later on, started the second war in the Iranian Gulf, recently finished, while the one at Afghanistan was going on, which maintained a tense political and religious atmosphere in the zone. However, the strong economic crisis developed in the North American territory, the miserable famous Ninja Effect, which reduced centenary institutions such as Lehman Brothers into inert dust, and threw out of the real estate market to big levers with State support as Freddie Mac Home y Fannie Mae…and both of them swept away hundred of banking institutions and shatter principal shares of different World Stock Exchange which jointly lost more than 20% of their net value, reissuing the dark epoch of the Great Depression occurred in the years thirtieth of the last century. Of course, that effect of those named “waste bonds” dragged with them the crude oil prices, pushing them down in a similar average levels to those in previous five years term…..and be careful if this present crisis, which has distorted jointly with the political and institutional corruption, previously unpolluted governments in almost all continents, is not longer having the same false hold of those waste bonds not paid yet. But in spite of that strong economic and financial crisis, primarily experienced in Europe and United States, the crude oil market at the beginning of this decade has again shown a recovery premonition on the matter of prices, not only due to the increase in consumption derived from any economic growth in particular, but also due to worrying military mobilization at the end of the last year in the surroundings of the Strait of Hormuz, between the Oman Gulf, located at the Southeast, and the Persian Gulf at the Southwest, fundamentally due to the development of Iran nuclear program, located at the North coast of the strait, and at present it seems to be unacceptable to the most important world industrial economies.

 We must bear in mind that this strait constitutes the first “bottleneck” of importance in the crude oil transportation by floating cisterns at worldwide level, and due to the crude oil volume handled there, hierarchies above other chokepoints as Bosforo, Suez, Panamá, Malacca or Bab el-Mandeb, only mentioning the most consequential maritime path among the producer countries and their international markets. Therefore, present speculative trend, bearing in mind that there has not failed to flow the first crude oil barrel to the international market using that maritime path, the war threats proposed around Hormuz, not only by Iran but also by USA and their allied, might place the crude oil price around US$150.oo per barrel around mid present year….. and in the case of an armed conflict in that zone and depending on its intensity and its duration, then from that moment on that level of prices would have no longer a roof but would probably become the ground of the next crude oil cycle (or energetic in general, as a reference for B.T.U. required in the industrial, commercial or domestic processes).

 On this regard, the David’s Tribe descendants have once again outlined their ingenuity to dress with something more that pepper and mustard present warlike stage, letting to leak what would be their new device or strategy to take out from operations, different Iranian installations basically built using French technologies and later on Russian technologies, among others such as Bushehr, Natanz, Arak, Shiraz or Qom if the OIEA combined with the economic sanctions and the oil seizure boosted by USA and the E.U., have not been able to persuade them in order to redimension their atomic program. It is commented that they are preparing commercial planes of large cruising range where to arrive from their bases (¿?) to the objective they have planned to bomb, any time from the next Northern spring. Such an action would sensible reduce the magnitude of regional concepts such as Hezbolá, Hamás, Islamic Yihad, Al Fatah, Arab Spring, Al Qaeda and others, whose components would integrate in some manner to the great regional battle, might be, in the unique outward they know. As it was remembered by my affectionate fellow, Milton Friedman, outlined on her moment a phrase, which time and distance have converted in a daily theorem: “There is no such thing as a free lunch”……and in our case would mean that somebody shall have to pay (via crude oil prices, obviously) all those massive military mobilizations carried out by the United States as well as their natural allied: Israel, England, France and Italy, by now, as well as Iranians and Russians on the side of the Caspian (and we do not know if later on Chinese and/or North Korean would join them); all of them with the pretext to protect the humanity from an imminent atomic war, which some dare already to qualify it as the “third world war”…..but beside the number that chronologically shall have, we are only waiting that the one involving Hormuz would not be the last!

Translation made by Isabel T. López Torres.

References:

1. D´Orazio, Franco: Análisis Económico aplicado a la Industria Petrolera; Editorial Libros en Red, Buenos Aires, Argentina, 2007.