Something is skyrocketing, and it’s not something made by NASA. Just the word “oil” is making everybody flinch. The price has shot up like a rocket on fire, putting us in the same boat as the summer of 2008, right before the economy dove into a recession. Flinch, flinch and flinch some more.
But who is to blame! Ah, that is a tricky question. It’s you! No it’s you! No it’s not me, it’s you!! Everyone has a different viewpoint on this. The most popular doing the rounds these days is the unrest in Libya. Really? I personally don’t think this argument carries much weight considering the Libya is a relatively small oil producer and pumps only about two-thirds of Canada’s output. So this is a short term explanation at best.
So who is responsible for this? The world is becoming thirstier by the day and the resource is limited. There is the recovering West on one side and the rapid development in China and India on the other. The thirst for oil is at its peak. So is it that even the slightest of shortage leads of magnified effect? It is being said that the high watermark of $147 a barrel will be revisited again. Cringe, cringe, and cringe some more.
Is it the big oil companies? From what I read, Saudi Arabia has an estimated 4 million barrels per day of spare capacity and since they are the biggest oil producers in the region, they could be crucial in bringing down the oil price. The problem here is that the quality of the Libyan oil is superior and the Western refineries on be able to handle the spare oil that is of a lower quality. Umm, I believe what the correct terms are “sweet” oil (Libya) and “sour” oil (Saudi Arabia’s spare). So it’s a quality versus quantity war, is it?
So what is being said is that there is oil, but since it’s not the right kind, the refineries won’t be able to deal with it- hence rising oil prices. Refineries do not have the ability to refine sour crude and hence cannot switch from Libyan sweet crude to Saudi sour crude. Hmm.
Middle East is engulfed with social and political unrest when the higher prices of oil should result in a lot of dough. Now why is that?
This problem is far more complex than I or I think anybody imagined it to be, for it’s not only our daily budget for gas that has increased. The problem goes deeper. It is our fragile economy that is in real jeopardy here, and by the looks of it, we might be heading into a zone of inflation and interest rate increases. At least that’s what I can say from what I learnt in the past four years in my economics classes.
Till my next blog,