The Oil and the Glory
The Weekly Wrap: July 1, 2011
A friendly wager — the Kremlin Contest: Among friends, I’m regarded as a bit of an outsider for my call on next year’s Russian presidential elections — a forecast here and elaboration here that strongman Prime Minister Vladimir Putin will opt not to return to the slot he held for eight years, and instead will ...
A friendly wager — the Kremlin Contest: Among friends, I’m regarded as a bit of an outsider for my call on next year’s Russian presidential elections — a forecast here and elaboration here that strongman Prime Minister Vladimir Putin will opt not to return to the slot he held for eight years, and instead will select his friend, President Dmitry Medvedev (pictured above), to run again next March. Over at the Washington Post, my former colleague Fred Hiatt is upset with the Kremlin’s approach to electoral politics, but that’s beside the point. The prevailing opinion is that Putin will return to the Kremlin, but I bet a glass of Rioja on Medvedev with the husband of a senior FP editor who sides with the conventional wisdom (she herself declined to reply to the challenge). None of this sways my colleagues. The other day, one fellow in the office called my prediction "implausible."
So I am throwing out a public wager — an election pool of a sort. Here are the rules: The winner must correctly name who is Russia’s next president and prime minister, plus the date when Putin makes the announcement. To be eligible, contestants must toss a small non-cash item into the pot (you will be wise to carefully observe this rule, because unless you yourself prevail, you’ll be mailing your contribution to the winner or otherwise arranging for its receipt; I’m throwing in another glass of Rioja, and if necessary will figure out how to deliver it.). The contest is winner take all, to be divided up on my judgment alone in the event of a tie. If the correct date isn’t guessed, the winner will be closest to the actual date without going over. The deadline for entry is Sept. 1 since Putin probably won’t make his choice clear before then.
This may not be as easy as it sounds. A ringer in the mix for example is metals-and-basketball tycoon Mikhail Prokhorov, who under certain circumstances could be prime minister.
Here are my guesses: President — Medvedev. Prime Minister — Putin. Date — Dec. 9, 2011. Send your own to me, using the email link just above my photograph, in the About This Blog box on the right side of the blog.
The casino moves faster than expected: We knew that oil traders wouldn’t stand by and allow the United States and other oil consuming states to think they could bring some order to volatile prices, as the U.S. suggested a week ago. But we didn’t suppose that traders could or would move this fast. On June 22, the price of oil closed at $95.41 a barrel. The following day, it plunged to around $90 a barrel when the U.S. along with other members of the International Energy Agency pledged to sell 60 million barrels of oil into the global oil market from their strategic petroleum reserves; it appeared as though consuming states were drawing a line in the sand, and saying they would pay no more for oil. They would drive the price down by making the market more uncertain for traders. But, as we discussed that day and Monday, traders were bound to perceive a dare, and to engage in some brinksmanship. They would make clear that the oil-consuming states were not prepared to keep intervening in the market. And that’s precisely what happened. As if to make a point, the price closed at $95.42 yesterday, or a penny above the level just before the intervention.
An official from the U.S. Energy Department says that traders have snapped up the 30 million barrels that the United States offered up for sale, Reuters reports. One reason is that it’s light, sweet oil, the type that Libya producers and has been in short supply on the global market. Yet Bloomberg’s Paul Burkhardt writes that some of these barrels are destined not for U.S. vehicles, but for U.S. storage tanks. In another gaming move, traders will hope to sell the volumes on again at a profit. (Update: In this document forwarded by an alert reader, Barclays Bank is attempting to snap up 200,000 barrels from yesterday’s SPR sale at $104.97 a barrel. If successful, Barclays at today’s prices would be able in this case to flip the volumes for an immediate profit since the curent premium for light, sweet crude is about $14 a barrel above the price of U.S. benchmark West Texas Intermediate.)
The takeaway is that oil prices will not moderate through sleight of hand, such as the injection of strategic reserves onto the market, or even Saudi Arabia’s planned addition of a half-million barrels a day or more to the global mix. The reason is that traders will always look to demand, and spare production capacity to meet it in a fix. That is, should there be a devastating hurricane, a new Arab Spring uprising, or a well-placed war, is there sufficient unused production capacity to make up for lost volumes? So we are talking a need for a continued rise in Brazil’s reserves; more production from the U.S. Baaken and Eagle Ford shales; and so on.
The Gulf of Mexico blame game: Was BP entirely at fault for the blowout of the well it operated in the Gulf of Mexico until April of last year? Pretty much, at least according to the court of public opinion and, thus far, the actions of authorities. But at Bloomberg BusinessWeek, Paul Barrett has a cover story next week laying out the case that Transocean, BP’s rig contractor, is ducking what should be shared responsibility. Of the 126 workers aboard the Deepwater Horizon when it blew up, 79 were on Transocean’s payroll, Barrett reports. These Transocean workers were carrying out the drilling operation. BP was ultimately in charge — it called the shots and made the big decisions — but it was Transocean’s practices and expertise that made the rig go. The undertone of piece is the appearance of unseemliness in Transocean’s rejection of any responsibility for the blowout, which killed 9 of its employees; a week ago Transocean issued a report laying blame squarely on BP’s shoulders. Barrett draws a portrait of a company whose strategy in this case is driven by the bottom line — if it isn’t found absolutely inculpable, it could be driven out of business by the cost of the billions in payouts owed to victims. Therefore, it is shedding all blame onto BP’s shoulders.