What $100 Oil Means

Yesterday's runup in oil prices was a mere blip -- two publicity-seeking traders appear simply to have sought barroom talk as the guys who made history's first buy over $100, then quickly sold at a small loss. But, coming the first business day of the new year, it's dramatized the new energy world in which we live.

I recommend an excellent piece today by my former colleagues at The Wall Street Journal -- Neil King, Chip Cummins and Russell Gold -- that sums up the themes we've been discussing on this blog, and takes them further.

In the hundred-dollar carbon fuel world, Big Oil is no longer in charge. Exxon, Shell and Chevron have been overtaken by Gazprom, Aramco and Qatar Petroleum. If you're an investor, the best long-term bets are some of these majority state-owned energy companies, and the technology-rich oil services companies being hired to work for them.

One takeaway point from the Journal piece is that Exxon -- the most successful of any of the Big Oil giants -- has only the 13th-largest oil reserves among the world's oil companies. The twelve biggest are all state-owned. This is a hugely important factoid -- Wall Street bases its valuations of oil companies on the reserves they own. So, logically speaking, they are headed for lower valuations. "Western oil companies now control only about one in ten barrels of the world's proven reserves," the piece says.

Another point is the enormous shift of wealth to these petro-states from consuming nations such as the U.S. At current prices, the Middle Eastern and Central Asian producers will earn around $750 billion this year.

For motorists, all of this means that, short of a recession, gasoline prices aren't likely to go down this year, but only up. If there's a hard hurricane season, they're likely to go extremely high.

The causes are an enormous increase in demand from China and India, along with only slowly rising production from the petro-states. There's actually a lot of oil sloshing around the world, but much of it is the wrong kind. It's heavy and sulfur-laden crude, which most refineries can't process. New refineries that can are on the way, but it'll be three or four years before they come on line.

Photo: gjofili
Rights: Creative Commons

Echoes of Zia in Bhutto Assassination; A Reasonable Election Delay

The bungling of the post-mortem in the Benazir Bhutto assassination is eerily reminiscent of the aftermath 19 years ago to the death of the general who hanged her father, Zia ul-Haq. In the Zia case too, police and investigators corrupted the scene of death, a field where a C-130 carrying him and most of his top generals crashed, killing all of them. Likewise, there were widespread cries of coverup, including by the United States, which blocked a FBI investigation and carried away key forensic evidence.

I looked into the Zia investigation thoroughly during the 1990s, and was never satisfied with how it was handled. A joint U.S.-Pakistani military panel found cause for suspecting murder -- one theory was that a nerve gas was implanted in the cockpit that disabled the pilots -- and recommended that a fresh panel comprised of pathologists be formed to look into that angle. But the investigation was halted right there. I concluded that the various powers -- the new Army general Mirza Aslam Beg, the intelligence agencies, and especially the United States -- decided that, if it was murder, they were better off not to know by whom. For instance, one suspect was Moscow, which at the time was in the middle of withdrawing from Afghanistan; if Mikhail Gorbachev were accused of murder, the pullout could be scotched. Another suspect was India, and a new war could be threatened on the Subcontinent.

All of this makes me unsurprised that the Bhutto murder scene was compromised. As with the Zia case, it could be a simple matter of incompetence. Otherwise, the issues appear different -- there ought to be no reason why officialdom wouldn't want to identify the culprits. Unless of course they themselves suspect the possibility of perhaps low-level inside connivance.

CNN has thoughtfully posted the Bhutto post-mortem, which I pass along here. It also posted a story that includes new film of the moments of the killing.

Parliamentary elections: The word is that President Pervez Musharraf will postpone parliamentary elections. On one hand, holding the elections on time next week would have been a strong show of calm leadership on Musharraf's part. On the other, rioters appear to have destroyed all the electoral paperwork in a dozen or so Election Commission offices, and it needs to be reconstructed so Pakistanis can vote in those districts. As my former Wall Street Journal colleagues reported over the weekend, Musharraf's opponents are urging Pakistanis to take out their grief on him; they are likely to see something pernicious in a delay. But it seems to me that a few weeks to get the records in order is reasonable. The date for a new election will probably be the end of February or the beginning of March.