Blood Shed Boosts Oil Price

The biggest potential losers in the still-roiling revolutions of the Middle East and North Africa are the people themselves. Many are democrats at high risk of being overwhelmed over time by new dictators and organised religious extremists. But the uncontested winners are already quite clear: those who own, sell, and bet on oil. In the last month alone, oil prices have leaped almost 10 per cent, even with only tiny dips in supply.

While these revolutions have produced daily thunderclaps worldwide about a new democratic future for the Middle East, power structures remain largely intact. Almost every country in the region looks as if it’s marking time, waiting. So far, those who took to the streets succeeded only in ousting their unwanted masters — Hosni Mubarak in Egypt and Zine Al Abidine Ben Ali in Tunisia — and not in really changing the power status quo ante. In Yemen, the established leadership does look shaky. In Libya, where the media proclaimed the rebels as victors last week, it seems like a standoff with Col. Muammar Gaddafi.

In Tunisia, where it all began, the revolutionaries are awaiting elections. The once banned Islamist party Al Nahda has just been legalised. In Egypt, the protesters still find themselves in the strong grip of the military. Elections are set for September, and the military, as well as the Muslim Brotherhood, can be expected to top the parliamentary polls. In Bahrain, the huge Shia majority took to the squares  — only a causeway away from the Saudi Arabian oil jackpot. To date, the revolutions have generated far more drama and hope than real change.

The fighting in Libya has understandably monopolised attention, though its international importance is modest. Its normal output of oil sits at only one per cent of daily global consumption. But watch out: legions of neoconservatives are demanding military action against Gaddafi, though his Arab neighbours say, “stay out.”

Israel is the biggest strategic loser. The Jewish state has relied on Arab regimes to subdue the anti-Zionist sentiments of their peoples. And Israel can’t do anything to fix its plight. Times are not at all conducive for new talks with Palestinians. The United States is also a loser, but it need not be a big one. Washington’s power depends on whether the revolutions peter out or launch new anti-American rulers. Whatever happens, Washington will confront greater anti-Americanism. Counterterrorism operations and anti-Iran diplomacy will suffer.

Turkey will be a model for Arab nations lucky enough to democratise. Its foreign policy balances between the United States and the states of Islam and is also now somewhat anti-Israel. Internally, Turkey balances between an Islamic and a secular state. The country has internal stability and a promising economy.

Conventional wisdom holds that Iran has won the lottery. But don’t bet on it. Iranians are Shias and Persians; the revolutionaries are mostly Sunnis and Arabs. These groups don’t particularly care for one another. Most important, Arab revolutionaries must surely despise Iranian leaders who beat and slaughtered Iran’s freedom fighters a mere two years ago. It’s quite possible that the revolutionary fervour will tire amid economic shortages and other burdens, and fade. Or the revolutions could erupt once again, forcing profound recalculations of US policy. But two things are certain: the oil barons and traders will get richer, and most people worldwide will scramble against higher oil and food prices and declining economies.

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Four Factors In Oil Price’s Climb

Oil markets churned on Friday as traders tried to figure out how oil’s price would be affected by four different international events: the situation in Libya, violence flaring up in Yemen, the continuing nuclear drama in Japan, and the Chinese government’s decision to raise interest rates.

With so much uncertainty, many traders decided to lighten their positions going into the weekend – but others decided that oil prices will rise, so increased their position. The result was high volume with little price movement. By 1 p.m., the price of oil was very slightly down at $100.69 per barrel on the New York Mercantile Exchange in New York.

Oil prices have stayed around $100 per barrel for the past two weeks, reaching a high of $105.44 on March 7. International developments appear to have stalled oil’s rising prices as market analysts try to decipher the impact of recent events.

“There is so much happening, there is so much more historic up-and-down risk than I have ever seen before,” says Phil Flynn, senior market analyst at PFG Best Research in Chicago.

Oil reaches $100 a barrel: Five winners, five losers

 

Libya

Many traders kept their eyes on the shifts taking place in Libya. Shortly after the UN authorized military action against Col. Muammar Qaddafi, the Libyan foreign minister declared a unilateral cease-fire.

“It reminds me of Saddam Hussein (former leader of Iraq), who knew how to game the UN diplomatic corps,” says John Kilduff, an energy analyst and founder of Again Capital, a New York-based hedge fund that focuses on energy. “It will maintain the uncertainty.”

Did the UN make the right decision?

No matter what happens in Libya over the short term, Mr. Flynn expects Libyan oil will remain off the markets. “To me, if Qaddafi does miraculously stay in power, the world will hit him with sanctions and no one will be able to buy their oil.”

Before the uprising, Libya was pumping about 1.65 million barrels of oil – mostly light crude – each day, most of it going to European nations where it was made into low-sulfur diesel and gasoline.

Oil analysts believe most of the Libyan production has been made up by Saudi Arabia.

“They had been increasing their production even before the Libyan revolution,” says Erik Kreil, an analyst at the Energy Information Administration in Washington.

Although much of the Saudi crude was geared more towards industrial uses, the Saudis have indicated they will blend whatever mix their customers want, says Mr. Kreil.

IN PICTURES: Qaddafi burns oil pipelines in Libya

 

Yemen

Although Yemen is not a significant producer of oil, news of violence in the country’s capital, Sana, was also roiling the oil markets.

“It’s another problematic nation in the region,” says Kilduff. “It borders Saudi Arabia and is important from a regional perspective.”

 

China

In another development watched by the oil markets, China’s central bank raised reserve requirements, in an effort to slow inflation. This will slow oil demand to only a minor degree, says Donald Straszheim, senior managing director at ISI Group, which does China research, in Santa Monica, Calif.

Mr. Straszheim estimates China currently imports about 5 million barrels of oil per day. China’s strong economic growth in recent years has increased its demand for oil about 500,000 barrels of oil per day, each year.

“If the economy grows more slowly, which I think it will, that will lower annual demand growth to 400,000 barrels of oil a day, which in the broad scheme of things is just a rounding error,” he says.

 

Japan

Oil traders are also watching the events in Japan. If emergency crews cannot stop the release of radiation from the damaged reactors, it would lower demand for oil, says Flynn since it would delay reconstruction after the earthquake and tsunami. On the other hand, if the Japanese are finally able to gain control over their nuclear reactors, it would add pressure on the price of oil to rise, Flynn says.