Fall-out for "The Axis of Diesel" from Falling Oil Prices---and for the Rest of the World

by Damozel | The [right wing] Times of London reports:

Together they form an “Axis of Diesel”. Buoyed by petrodollars, Russia, Iran and Venezuela hectored the West as they extended their reach abroad, backing separatists in Georgia, Islamists in the Middle East and Leftists around the world.

Now those oil-producing powers may be forced to draw in their horns as crude prices tumble. They face austerity budgets that could force them to scale back their military spending and foreign assistance even as falling oil prices fuel domestic dissent.(ToL)

You might already have noticed.  We certainly have.

At the pump, crude's decline pushed prices even lower. A gallon of regular shed 4.4 cents overnight to a new national average of $3.403, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices peaked at $4.114 on July 17....

Crude has shed about $60 — or 40 percent of its value — since soaring to a record $147.27 on July 11. The massive losses come as a global financial downturn forces people and businesses everywhere to cut back. (Salon)

National Business Review commented on the plunge in oil prices on Thursday.  Mitchell Hall wrote:

The Wall Street Journal said that in its monthly report out today, Opec’s forecast for global demand growth said demand for Opec crude will fall massively – by roughly 900,000 barrels per day next year, at the same time as around 1 million barrels per day of oil is expected to hit the market from non-Opec companies.

It's bad news for Russia, Venezuela, and Iran.

“All countries heavily dependent on petroleum revenue are nervously watching oil prices as they drop not just far, but quickly,” said Jonathan Elkind, a senior Fellow at the Brookings Institution in Washington.

“That price adjustment is raising questions in all these capitals about the suitability of the economic model that has been making them feel so full of themselves in the recent period.... 

Leaders in Tehran, Moscow and Caracas have gloated as the financial crisis has hobbled the United States and its Western allies. Analysts say that the three swaggering petro-states are the most vulnerable oil producers to the steep price declines. From a record high of $147 (£85) a barrel in July, crude oil is now trading at around $70 after dipping to its lowest level since August 2007.

Deutsche Bank estimated in a recent research note that Iran and Venezuela need an oil price of more than $95 a barrel to balance their budgets, and Russia requires a price of $75. That compares to a break-even figure of $55 for Saudi Arabia.(ToL)

At Brookings, Elkind also cautions that this is not reason for Americans to be singing "Happy Days are here again." "They're not," he says flatly. (ToL)

No, I think even lefty economorons like me get that.  Even so, there's a certain schadenfreude (always likely to disagree, but always delicious to the taste) in the effect on the aforesaid "axis of diesel."  "Ha bloody ha," my husband commented sourly.

Threatened by the price decline:  President Ahmadinejad, up for reelection in June. ToL) Too prodigal with those petrodollars, he significantly drove up inflation. (ToL)  The Chavez government is also in trouble.(ToL) 

Also possibly threatened:  the push toward clean energy.  Okay, that's not funny.   At The Wall Street Journal, Keith Johnson wrote:

Tesla Motors, the electric-car maker that became the poster child of alternative-fuel vehicles, is cutting staff and postponing new models because venture capital funding is drying up. But oil poses its own threat—how attractive is a $100,000 electric roadster with oil in the $60s and gasoline under $3 a gallon?

Cheaper oil could also affect support for renewable energy, even though wind turbines and solar panels don’t compete with oil and gasoline today. Crude at $140 focused minds in Washington on the need to look for alternative energy sources. It also fueled seemingly thousands of interviews by oilman-turned-wind baron T. Boone Pickens pitching his “Pickens Plan” to harness wind power and natural gas to reduce dependence on foreign oil.

When oil prices collapsed in the 1990s, renewable energy in the U.S. basically fell off a cliff. Nobody is predicting a return to $10 oil, but with $60 oil considered the “new cheap,” could it happen again?

Anyway, OPEC "won't take this lying down, with plans to cut production at their November summit in Vienna, possibly by up to 1 million barrels per day on top of the 500,000 barrels it took off the market earlier this year."  (National Business Review) 

But Libyan oil chief Shukri Ganem wants you to know that this isn't just OPEC looking out for number one.

[He] called on oil producing nations to cut output to "protect their interest (and) stop the loss of income."

"However, OPEC's aim is to create a balanced market, which neither harms the producers nor the importers," Ghanem told The Associated Press.  (Salon)

 

But:

While Opec controls 40% of the global oil supply, analysts say even an Opec cutbuck won’t arrest the downward direction of crude. (National Business Review)

Oil analyst Peter Beutel doesn't think it will work in the long-term.

[He said] OPEC cuts can rally prices for "a week, two weeks or a month."

"But over a longer period of time, they're incapable of stopping major moves," Beutel said. "We've been down this road before, but OPEC refuses to learn this lesson."(Salon)

The recession might have amused the A of D at first, but they ain't laughing now.

"Overall demand for oil fell for a fifth straight week and year-on-year demand fell for a 24th straight week" this year, noted trader and analyst Stephen Schork in his Schork Report. "In fact last week demand ... fell to the lowest level since the week following the 9/11/2001 attacks."

Demand for gasoline was also weaker, falling 5.3 percentage points over the four weeks ended Oct. 3 compared to the same period a year earlier, according to the EIA report.  (Salon)

The ToL has further information on some of the troubles the Axis of Diesel might be facing.  Too bad for them.  I'll reserve my tears for my "clean energy" hopes and aspirations.  Though maybe "Drill, Baby, Drill!" may become less of a rallying cry, so there's that.

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Comments

[Close Observer]

This is all a figment of our imaginations. As the left assured us in comforting condescending tones just three short months ago, PEAK OIL IS REAL AND HERE TO STAY! The supply curve has flattened and is moving toward steady decline! Gas prices will NEVER drop below $4.00 per barrel again! Time to go European and take the bus!

Funny that to maintain this hopeful fiction, the Left has to ally itself with Middle Eastern petro-thugs and corrupt institutions like OPEC.

[Damozel]

CLOSE OBSERVER: I don't know what member of "the Left" you are thinking of, but I never said anything of the kind. Nor did I think it. Nothing surprises me less than the sudden drop in prices, since we saw the same thing in the Bush-Kerry election in 2004.

You're welcome to comment, but please observe that this IS a progressive blog, written by progressives. We don't share your premises and are unlikely ever to draw the same conclusions.

[Texrat]

Close Observer is just another self-deluded soul who Just Doesn't Get It.

Peak oil IS here, and here to stay. Sorry to those who failed science and math, but finite resources do have limits!

But that doesn't mean the market will always be predictable. What unschooled sorts like CO don't understand is that there is an overall trend encompassing myriad ups and downs. If anything, the behavior mode is fractal rather than perfectly inclined or steady-state. One need only bail out of the world of rhetoric and examine actual d-a-t-a (what a concept!) to recognize this.

We're seeing just another strategic dip in the sawtooth. That blip has not impacted the larger scenario. We're closing in on the day when oil will cost much more to extract and refine than it is worth. Then we'll look back at $4.00 per gallon gas with fondness, and people like CO will have to shout their continued denial at a much smaller audience.