Comm: Precious

(San Antonio)

Lost amongst a flurry of important global headlines was the potential for a world oil crisis given the recent unrest in Iraq, Libya, and Iran, all of whom are major oil producers. This article, in the Financial Times, illustrates how the boom in North American shale oil has completely offset those worries and assuaged any fears about an oil crisis. Were it not for domestic production, the US’ thirst for oil, which was formerly sated through imports, would have driven oil prices sky-high as a dearth of supply would have struck the market. However, with the US producing so much of its own oil, the rest of the world’s output has been able to keep up with demand. For instance, Eagle Ford, one of the US’ major shale oil plays, was producing just 15,000 b/d of oil in 2010, but is now producing 838,000 b/d because of innovations in hydraulic fracturing. Global oil prices peaked at $115/barrel, but have since fallen below their three-month average to $104/barrel.


FINSUM: This is a great article for conceptualising just how paradigm-shifting the US shale boom has been. If the same pre-conditions as now were in place five years ago, the world would have had a major supply crisis on its hands.

(Brussels)

This article, which is ostensibly about Exxon Mobil’s shift into more diesel refining, is really a study of the changing nature of the European automobile and fuel markets. The piece shows that due to great technological advances, diesel cars are now far outpacing gasoline-powered autos across Europe. More than half the new cars registered every year are diesels, with the figure at two-thirds in Spain, France, and Belgium, and astonishingly, Europe now burns 2.5x the amount of diesel as gasoline. The transition has been fairly quick—as short as a decade ago, the mix was even, and ten years before that, gasoline was dominant. Buyers now like that diesels get better fuel mileage and feel faster than gasoline cars. However, all of this means that European refiners have drastically mismatched infrastructure compared to market demand and have far too much gasoline, which is hurting their business. Formerly, suppliers could export surplus gasoline to the US, but with prices so cheap there due to the North American oil boom, the suppliers have nowhere to sell the fuel.


FINSUM: This story is important for investors in both autos and refiners. The changes taking shape in car sales, fuel refining, and distribution are sure to lead to some big winners and losers.

(Canberra)

According to this article, the dissolution of Australia’s short-lived carbon tax is a lesson in political mismanagement of an important policy. The new Senate is likely to vote on a measure to eliminate the two-year old tax because of a high degree of business and popular pressure to abolish it. This piece analyses what went wrong. Evidently, Australian politicians failed to clarify the situation when voters became angered by soaring electricity prices and high gasoline bills, both of which the electorate thought was due to the carbon tax, when in reality they were due to business’ infrastructure spending. Gasoline was not even part of the carbon tax. As such, popular demand and approval for the tax, which stood at a peak of 68% in 2012, plummeted and political parties split over the issue. The final straw was when Rupert Murdoch’s media empire in Australia wanted the tax abolished, which meant the popular journalistic outlets presented the tax as “toxic”. In reality, only 250 of Australia’s largest businesses were ever touched by the tax.


FINSUM: This is an important lesson for the Obama administration to heed on the heels of the White House’s new executive order to reduce carbon emissions. The tide of opinion can change very quickly.

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