The Changing Game of Oil

Up until 2009, the oil blame game began just before Memorial Day in the US. Politicians would line up to paint oil companies as greedy price fixers, jacking up the price of gasoline before the summer driving season. What a difference a year makes.

Politicians being what they were (and still are), chose not to acknowledge that increased demand for a scarce resource leads to increased price. Most of us older than 4 understand patterns. Summer is when Americans drive the most. Thus the increased demand for gasoline and the increased price.

However, in the 2009 global recession, the price of oil is less than half of its 2008 record ($145 bbl). Why has the price fallen so much? Because oil is a leading economic indicator, meaning that its market price is a prediction of demand one month in the future. The market correctly believed(s) that the global economy would tank.

Oil prices have fallen since last year, down as low as $34, then settling in to the $70s, as of 08 July 2009, it is down in the lower $60s. Obviously, the case for price fixing is quite flimsy, or so it would seem. How’s your credit score? 0-600 Poor, 601-680 Fair, 700-774 Good, 775+ Excellent. Find out your Score now FREE!

While we aren't hearing the usual cast of characters demanding ExxonMobil and Chevron's chairmen explain why gas is more expensive, we are hearing cries of "Speculation!"

In the 08 July 2009 edition of the Wall Street Journal, the article starts:

"Policy makers on both sides of the Atlantic launched an effort to crack down on what they called speculation in oil markets, underscoring concerns that a sharp rise in oil prices could worsen the global economic downturn."

Perhaps Gordon Brown and Nicolas Sarkozy should take a deep breath and just try to control their instinct to regulate. Not to be outdone, Sen. Byron Dorgan (D-ND) declares the need to control "...oil speculators looking for a quick buck at the expense of the American consumer."

As I have written previously, traders in oil futures are airlines, utilities, and others who consume a regular supply of oil over a year and are trying to smooth out price variability. Sounds pretty reasonable to me. Additionally, since oil is a global commodity, denominated in US dollars, its price fluctuates with the value of the dollar. Inflation in the US spells higher oil prices, and conversely, recession or deflation spur lower oil prices. Of course, the 800lb gorillas in the room are China and India, as their consumption grows annually. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Does the trade of a global commodity need to be regulated? Only if it means the enforcement of contracts! Since oil hasn't followed its usual trends, government officials are struggling as how to propose more regulation. While oil is a critical component in the global economy, demands to regulate its future sale will only wreak havoc. Oil is generally an efficient market, though it is subject to swings. By allowing the swings and the pain it causes, the market will right itself, and hopefully teach important lessons. When government interferes and distorts the market, the swings are wilder and damage greater. Just look at housing bubble. Need I say more?

Solar Saves Lives

Although this blog is focused on value and money, there is nothing more valuable than human life. That's why I am pleased to write about a nifty gadget that uses solar energy and plastic to bring clean drinking water to the poorest of the world.

Both Gizmag.com and ecofriend.org have articles about the Solaqua, an inexpensive device that uses the sun to purify water. Water Barrels and Storage

It was designed by "...Jason Lam, a student at the University of New South Wales in Australia. It was runner-up in the student division of the 2009 Australian Design Award - James Dyson Award announced on May 29."

Simply, the device has a central funnel with a filter, that then distributes the water to 5, two liter bottles. The bottles have black bottoms to concentrate the rays of the sun, and the plastic is designed to reflect the UV rays of the sun. This method is known as SODIS (Solar Water Disinfection) and is recommended by the World Health Organization. Discover Top Rated Mighty Leaf Herbal Tea. Tea lovers love our delicious herbal tea blends. You will too. Save 25% on your first order!

As an American, I am used to clean drinking water from the tap. However, having traveled to China, Vietnam, Thailand, and other countries without clean drinking water, I know just how blessed we American's are. Water borne pathogens kill millions of people each year, with children and the elderly hardest hit. A simple system such as Solaqua can help prevent many of these deaths, cheaply and easily.

The true value of any innovation is how much it helps promote human life. To Jason Lam and SODIS.ch, I salute you and encourage you in your work! I also encourage my readers to take active steps to promote clean drinking water to the poorest among us.

Falling Commodities Crush Recyclers

The end of 2008 through March of 2009 has seen a precipitous drop in the price of commodities, particularly aluminum, steel, and iron, though copper is improving in China. This drop has caused a similar drop in the price of recycled, or scrap materials from recyclers.

As I have written previously in, "Your Garbage, My Money," recyclers were seeing a real boost in the price for their metals, etc. However, the cratering of commodities and the global economy as a whole, has seen the demand for scrap drop accordingly. eFax Annual Subscription

For all my readers who love charts, I have included charts from metalprices.com, who kindly allows the reproduction of their charts. Below, you will find charts for scrap iron, which includes steel, and scrap aluminum.



What does this spell for recyclers? Simple, the gray old mare ain't what she used to be. Like every business in the industrial supply chain, from oil to scrap to finished products, demand has fallen and everyone is pinched. Some recyclers are refusing new items, as their yards are filled to capacity. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Some of the largest recyclers are US municipalities. Solid waste fees were paid in part by the sale of recycled local waste. Now, according to americancityandcounty.com, municipalities are seeing drops of 50% in their recycling revenue and now are considering additional user "fees" to cover the short fall. In other words, taxes. Compare Auto Insurance Quotes and Save!

However, some localities are fighting the decline in prices with an increase in supply, "Others, like the Philadelphia suburb of Cherry Hill, N.J., are even paying residents with retail vouchers to recycle through a program from New York-based Recycle Bank."

Even when it comes to trash, the market sorts itself out. As long as steel and aluminum are being produced, there will be a market for scrap, though watch for many of the smaller players to get consolidated as the demand for continues to drop.

A Global Nuclear Renaissance

An article in the 24 October 2008 print edition of the Wall Street Journal (B2) reports that France's Areva SA and Northrop Grumman are forming a joint venture to build heavy equipment for the nuclear power industry, as well as an engineering center in Newport News, VA.

According to a joint press release on 23 October:

The 300,000 square-foot facility represents a significant investment of more than $360 million in the U.S. commercial nuclear and manufacturing industries and will bring more than 500 skilled hourly and salaried jobs to the Commonwealth of Virginia. AREVA Newport News will be the first full-scale manufacturing facility dedicated to supply heavy components, such as reactor vessels, steam generators and pressurizers to the U.S. nuclear energy industry.



What the casual reader should know is the that the Newport News facility is one of the world's largest shipyards, and only one capable of building a Nimitz-class nuclear aircraft carrier. In short, it is a gigantic heavy industry site with highly-skilled labor.

This story is relevant to this blog not only because it follows the path of several previous articles:
"A Nuclear Renaissance in Germany?", "Nuclear, French Style", "Nuclear, India Style", "Nuclear, America Style", and "Build Wind, Drop Nuclear - Germany Loses its Mind" but also because nuclear power is one of the "greenest" and most reliable source of energy on the planet. This joint venture is also a shot in the arm of US heavy manufacturing, as the predicted market for its products is $100 billion.

Nuclear power is good for the US and those nations who are responsible. Let's hear it for Areva and Northrop Grumman for expanding the opportunity for clean and reliable power to the rest of the world.

Global Warming, Mental Disorder?

When discussing the latest "crisis," whether its global warming, global cooling, el Nino, la Nina, etc., the discussion can be taken to an extreme.

In an article from the Herald Sun of Australia, titled "Doomed to a fatal delusion over climate change," a poor child was diagnosed with "Climate Change Delusion." Allow me to first offer my deepest and sincerest concern for the welfare of the child and his family. However, I am discussing this article because of the often irrational nature that global warming and "carbon" believers display.

Andrew Bolt writes:

Writing in the Australian and New Zealand Journal of Psychiatry, Joshua Wolf and Robert Salo of our Royal Children's Hospital say this delusion was a "previously unreported phenomenon".

"A 17-year-old man was referred to the inpatient psychiatric unit at Royal Children's Hospital Melbourne with an eight-month history of depressed mood . . . He also . . . had visions of apocalyptic events."

Although Mr. Bolt is writing an editorial, he seems to identified some pretty clear characteristics that have recently been displayed by both US and Australian government leaders. US Senate Majority Leader Harry Reid (D-NV) said, "...coal makes us sick, oil makes us sick..." as he discussed the need for alternative energy to replace fossil fuels (good grief!).

Not to be outdone, the Prime Minister of Australia, Kevin Rudd said:

"If we do not begin reducing the nation's levels of carbon pollution, Australia's economy will face more frequent and severe droughts, less water, reduced food production and devastation of areas such as the Great Barrier Reef and Kakadu wetlands."

What empirical evidence does he give for this frightening scene? None specifically, just the advice of another green advocate, Professor Ross Garnaut:

"Australians must pay more for petrol, food and energy or ultimately face a rising death toll . . ."

Wow, it becomes clear, doesn't it. These folks have a vision about how they want people to live. Most people don't agree with that vision, so Rudd and Garnaut are trying to scare people into believing they are in danger and will have to part with their own wealth and lifestyle to fit the deluded visions of the disciples of green.

So, what do China and India, the world's biggest polluters, say about this?

...Ma Kai, head of China's powerful State Council: "China does not commit to any quantified emissions-reduction commitments . . . our efforts to fight climate change must not come at the expense of economic growth."

From India,

... the Prime Minister's Council on Climate Change, said India would rather save its people from poverty than global warming, and would not cut growth to cut gases."

In other words, green ideas and carbon cutting are not in the best interest of the developing world. It is refreshing to see governments exercise enlightened self-interest and the well-being of its citizens as guideposts for policy decisions. When will liberal guilt in the West end and common sense return? Soon, I hope.