Thursday 21 June 2012

Filling Up The Tank

Apparently the Wall Street Journal (pay walled) yesterday commented on the G20 paper concerning the regulation of transactions and reporting in the oil markets.  The nub of it, according to Naked Capitalism was that the regulators had wimped out of taking the financial trader boys in oils on to assert the need for transparency.

The supply of oil is the bloodstream of the world economy.  It is a highly complex collection of businesses that are interdependent and function at a high level of interaction.  Beyond that both almost all agriculture and most industry is critically dependent on oil supplies and the relevant markets.

This means that the money is attracted to it and that the monetary systems of the world are integral to it in ways that very few people understand at all levels.  If within those monetary systems the trading in and therefore the pricing of oil is governed by a small number of expert traders and speculators there is ample opportunity for problems.

These can impact on everyone and all the economies and almost all human activity.  But in the turmoil of recent years the oil prices and their trading at times has been become chaotic in form.  This means that the dependent economic policies of very many states can also become chaotic.

One web site mentioned often in this blog is the Oil Drum where a number of experts in the field of oil production can publish their findings, opinions and theories.  There is a lot to debate and to disagree about and this is reflected in the content.

Very recently in the UK there has been a issue over the shutting down of the Coryton Refinery in Essex which entails the loss of many jobs at the site and others in the local and wider community. 

The UK main media has concentrated on this and whether the government should have nationalised the plant or bailed out the loss making owners.  There was less comment about the need for around £500 million pound of work needed for updating and safety reasons.

But the issues are much greater than that and much more complicated.  The link below is to a 4500 word article on European Refinery problems.  It is not easy reading but it tells you a lot.  Below that is a quote from the text that gives the key to the issues involved.


The Source of Pain for European Refining

What is wrong? What has happened? The malaise in European refining has not happened overnight. The reasons are deep rooted and come from a number of causes:

Lack of profitability and therefore under-investment over decades.

High end use pricing due to taxation making up more than 50% of retail cost of transport fuels The refiners have been unpaid tax collectors.

Changing fuel specification standards, especially with respect to sulphur and aromatics

Change in product mix which does not now fit the historic refinery configuration.

Growing US gasoline exports making the European gasoline surplus more and more difficult to dispose of.

Biofuel blending especially with ethanol into the gasoline pool.

Carbon Emissions and ETS (emissions trading scheme).

Put together, the causes have made for a miserable 2011 and many refiners are either losing money or are barely profitable, and this is before they start paying for carbon emissions.


This is at the large scale end.  Down at local level there is the small scale, notably the filling stations owned by small businesses in less populated areas.  One good example of a closure last Autumn is this one in Scotland.

Ellon is in Aberdeenshire, just north of Aberdeen, the home town of the Scottish oil industry.  At present Scotland’s future is being predicated as a form of independence that will be funded by the oil industry and related financial operations.

This might not be as easy as the politicians suggest.  Moreover, for the Unionist’s there is another problem in that the Scottish oil industry in the not too distant future may turn out to be less of an asset and more of a liability.

If indeed the oil industry and the pricing of its products and management do go chaotic then nobody can know what can happen or where or what the effects may be.

It is said that there are now 50,000 Russians in Cyprus.  How did that happen?

1 comment:

  1. I read somewhere that all these problems for oil refining add up to enough uncertainty to discourage investment in new capacity. In that sense it's simple enough problem, even though the forces creating the uncertainty are complex.

    Simple, but not simple to resolve of course, for the reasons you describe.