Incoherent Reporting from WSJ
I just finished reading an article from the Wall Street Journal that left me shaking my head. I think the article is subscription only, but you can find it for now at:
The story made a number of unusual or misleading claims that were then sometimes contradicted within the story. Here is one example:
The events — which included a statement by a top OPEC official to The Wall Street Journal that the world’s oil cartel doesn’t see a need to check the price surge — might not have moved oil markets dramatically by themselves.
That’s not remotely what that OPEC official reportedly said. What he said was that the price was being driven by speculators and geopolitical events, and that bumping up supply wouldn’t help. In fact, the story itelf contradicts that claim a couple of paragraphs later:
“We have no price band or price target,” Mr. El-Badri said on the sidelines of a meeting with Chinese energy officials in Beijing. “If it persists for a longer period, then we start worrying.”
So, what he said was that they will start worrying if the price stays where it is. That sounds to me like they recognize the need to check the price surge, provided it has staying power. I suspect what they want to avoid doing is having to promise new production each time the price surges – especially if speculation and geopolitical events are helping that surge.
Another statement in the story has been wildly misinterpreted/misreported:
Then came the comments from OPEC’s Mr. El-Badri, suggesting that the cartel didn’t plan to step up production to add supplies to the world market.
Again, very misleading. What he said was that right now they don’t have plans to bump up supply beyond the 500,000 barrels that they have already promised. Yet many are reporting the above statement as if they have rescinded what they have already promised.
“We’re in an extremely tight supply situation,” said Ann-Louise Hittle, a Wood Mackenzie oil-market analyst. That, she said, was giving credence to “peak oil theory” and the idea that supply won’t be able to meet growing demand.
Partial credit. Peak Lite says exactly that – supply won’t be able to meet growing demand. Peak Oil says that supplies have actually peaked and are falling.
This year, the situation has become worse. OPEC placed constraints on its production starting last November, driving up oil demand by 1.3 million barrels a day in 2007, according to Wood Mackenzie.
That doesn’t make much sense. OPEC constrained production, and this drove up demand? More likely demand grew as it has been growing, and OPEC’s cuts caused the supply cushion to evaporate. It has nothing to do with the cuts driving up demand. In theory, it could happen if people thought they needed to hoard, but OECD stocks have actually fallen slightly this year. That means it is unlikely that the constrained production drove up demand.
OPEC ministers have complained in recent weeks that the latest price surge has little to do with fundamentals such as supply and demand. They argue that the price increase is driven more by market speculation, the falling U.S. dollar and refining bottlenecks.
Which is why they are saying that there isn’t much they can do about it. In truth, there is. If they have the spare capacity, they could flood the market and collapse the price. Secondary factors or not, if they said they were putting a million and a half more barrels on the market, the price would come down in a hurry. So I don’t fully subscribe to their position that they can’t do anything about the price.