PARIS (ResourceInvestor.com) -- To the general public a move of a dollar in a day seems big. It is not the fault of the general public that they feel like this. The way the media, certainly the mass media, like to phrase stories leads people to think this way.
The mass media needs to fill the space that comes between the adverts. Media sells users – you and me – to advertisers. Things like truth, objectivity and careful use of facts are neither here nor there.
From this we get stations like Fox News where demented right wing media people sell demented right wing viewers to demented right wing advertisers. From this we get the New York Times who sell recyclable organic readers to recyclable non-organic advertisers to do something not very organic or recyclable, consume. There is actually a lot less difference between Fox News and the New York Times than either of their pious, self serving editorial teams would like to believe.
Thus every day the idiots in the media need to say something about oil and gas. It has either “surged,” or “slumped.” It has “approached record highs” or had “dramatic fall backs.” It has to look and sound good, important and now. The truth is at once far more mundane, but far more interesting.
The second quarter of 2006 has seen the record high prices of $75.35 intraday on April 21st, closing at $75.21. Yet at the same time the second quarter of 2006 has seen a low of $65.60. This means the range over the whole quarter was $9.75. True there were some sharp daily movements, some crazy days when nothing seemed to make sense but to see less than a $10 move over a period of three months is not volatility.
If you take the $9.75 range as a percentage it works out at around 14%, which makes it the least volatile quarter since the fourth quarter of 1997. The average price is also likely to beat the previous record set in the first quarter of 2006.
Personally yours truly felt that we would see prices in the range of $65 to $67 in the first half of the year. Like so many other people who work with oil on a daily basis it proves how easy it is to be wrong. My predictions were generally on the high side. Most bank analysts thought the price would come in around $58 to $62.
So what are the bets going to be for the approaching third quarter, normally the quarter when prices are at their highest? Will oil stay between $65 and $75? Remember Iran are going to announce their reactions to the G8 nuclear proposals on August 22nd. How will that fare? What do you think the markets will do in the run up? Be nice and relaxed? Feet up with a cigar?
It seems unlikely we will get another terrifying hurricane season but what happens if we just get one bad one. How will the market react then? The destruction of Iraq continues apace and its main oil exporting terminal in Basra is looking shakier by the day. What about Nigeria? We could then throw in a few more kidnappings or shut-in supply from the Niger Delta. Does anyone think these problems will suddenly disappear?
Also let us not forget than there are many maturing – or peaking if you like – fields around the world. Not contentious ones like Ghawar, but actual proven maturing fields and basins like the U.K. and Norwegian North Sea. Like Cantarell in Mexico. Whilst new production is coming online, undoubtedly, it genuinely does have to work against a backdrop of significant maturation.
On that basis $80 oil would not be a major surprise would it? After all that is less than $5 over the record. It also will not be the end of the world. But, you can bet your life if we see $80 in 2006 the pathetic excuse we have for a media, will tell us it almost certainly is.
