Publications: Notes at the Margin

Petroleum's Many Front War (March 12, 2012)

 

The oil industry is fighting a multi-front war. Surprisingly, industry executives fail to recognize the nature of most of the attacks involved in this conflict. The first front is regulators. This is one industry officials do understand. The second front is consumers. Few executives seem to realize they are at war with their customers. Gasoline use is falling at an increasing rate. The third front involves renewable fuels. Thanks to regulations proposed and enacted during the Bush/Cheney administration, more than two million barrels per day of petroleum products must be replaced by renewable fuels within ten years. A fourth front involves the agencies that regulate commodity markets, Congress, and European bureaucrats who detest commodity markets. Attacks on speculative activity are picking up again. In addition, oil has a fifth front that just opened. Officials of Shell, Exxon, and other oil companies are fighting Mario Draghi, Melvin King, and Ben Bernanke. It is another clash the oil industry does not recognize. This last battle may have the greatest long-term consequences for the industry and markets. This week's report starts with the last topic and then discusses the return of the speculation debate.

 

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