The Oil Card

Seeing gasoline under $3 a gallon ($2.829) is a welcome state of affairs for Saipan, so what better time to take a breather and wonder why oil had such a drastic run up in recent times. What made it go up? What made it fall (mostly) back down?

As for the going up part, my take, in my April 25, 2008, column, was this: ” I think we’re seeing a huge Middle East worry premium, for the simple and elegant reason that I can’t think of anything else to explain what’s going on.”

More recently, the glaring flaw in my theory, of course, was that oil prices collapsed without an apparent change in the Middle East situation and its related worry premium.

Well, I’m out of answers. But seasoned business and energy reporter James R. Norman has a few answers of his own. He’s the author of The Oil Card (TrineDay, $14.95, 244 pages). This is a bold, original, and, frankly, conspiratorial take on the wacky swings we’ve seen in oil and gasoline prices. Hey, if we’re paying all that money for gasoline, we might as well try to find out why.

Norman’s theory is that the U.S. government, via its various levers in both public and private sectors, does, indeed, set, or at least strongly influence, oil prices. Why would Uncle Sam do this? Because, Norman believes, it is economic muscle that can either punish, or reward, Russia and China, who are, of course, the main strategic rivals to the U.S.

As a major oil exporter, Russia benefits from high prices. China, on the other hand, which imports oil to feed its thirsty industrial machine, is hurt by high oil prices.

Taking the reverse case (low oil prices), Norman spells out how, as the sun set on the U.S.S.R., the U.S. was working to keep oil prices low so it could presumably put the zap on Ivan’s wallet.

The higher prices of 2008 and the immediate years before, by contrast, flooded Russia’s coffers with money, but may have also been a swipe at China. In a chapter on China titled “From Ally to Adversary,” Norman says: “Well before Clinton left office, and with or without his involvement, the U.S. security establishment appears to have been moving toward a ‘Plan B’ to deal head-on with the China threat.” Norman then describes various geopolitical matters that seem to show that America is thwarting China’s efforts to improve its international oil access and development assets.

Norman manages to pack most pages full of market data, company information, transaction figures, and other pertinent facts. His hands-on time as a reporter in the industry certainly pays off here. There’s not much, if any, slick summarization or distillation of this data, it’s presented in a constant stream of prices, facts, figures, names, and events. It’s up to you to connect the dots.

The meatiest concept of Norman’s outlook is that the futures market in oil is subject to U.S. manipulation, and the modern epoch’s influx of pension funds, for example, gives the powers behind the curtain extra weight to throw around. Do I buy the idea that Uncle Sam can substantially set the price of oil in this manner? No, I don’t, not that I’m an expert in oil futures, but the case has not been proven to me.

The book (published in 2008) did not predict the recent collapse in oil prices. By contrast, Norman accentuates a future where prices “climb ever upward from $100/bbl to $120, $150 or even $200…the reason is economic warfare” waged by the U.S against China. Well, that’s a far, far cry from today’s price of $42/bbl. Of course, prices might yet zoom back up; I have no idea what will happen. Still, wherever prices go, I give Norman (who has written for Forbes and Business Week) credit for laying his cards on the table, which is very rare in this era of generally gutless, mealy-mouthed economics writing.

The Oil Card, also to its credit, pooh-poohs the “Peak Oil” hysteria, as do the couple of experts I’ve discussed the topic with.

This is an interesting book with a lot of international intrigue, and, though I don’t connect the dots the same way as the author does, I learned a lot from reading it. If you’re interested in China, as many Saipan residents are, the book has quite a few interesting economic observations. Also, the detailed, eight-page index does justice to the hundreds (probably thousands) of facts that the book presents; that’s a nice touch.