Tuesday, May 18, 2010
Um... Cause? Effect? Are you guys talking to each other anymore?
For those of us not keeping track, and that includes me until a few minutes ago, The whole Gulf of Mexico disaster started in late April. This picture is from April 24. It's now May 18 and that means a big old gash in the bottom of the Gulf of Mexico has been spewing petroleum like an underwater volcano for about three and a half weeks now. Sure, this is bad news for British Petroleum, it's bad news for the entire Gulf ecosystem. Oil is washing ashore in the Florida keys and this platform is near the Mississippi River delta in Louisiana.
Then we've got the whole "I drink your milkshake" concept popularized in There Will Be Blood. The oil that isn't available to this rig is also not available to other rigs tapping into the same big subterranean pocket of black goo. Moreover, this could easily have a long-term anti-offshore drilling political effect similar to the anti-nuke sentiments triggered by Three Mile Island and Chernobyl. So, short term, there should be less oil available, and long term, it could be harder politically to get to some oil fields.
Supply is shrinking and demand continues to chug along. Prices should therefore go in what direction?
Anyone? Anyone? Bueller?
If you answered "skyrocket", you paid attention in economics class. If you said "plummet", you have been paying attention to the market over the past few weeks. On April 23, the Friday after the disaster started, crude was selling for $85.09 a barrel. Right now, it's under $70 a barrel at $69.16, a loss of about 19% in 25 days and reaching the lowest price this year.
When prices went completely nuts during the end of the Bush administration and hit $140 a barrel, the business press made up some fresh bullshit excuse nearly every day to explain why, with supply and demand not changing all that much relatively, the price could effectively double in eleven months and contract back to where they were in about three months. This bad news should be sending oil prices up, not down.
Are cause and effect not even on speaking terms anymore?