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Eureka: Explaining oil price fluctuations Eureka: Explaining oil price fluctuations
by Jay Gutman
2017-11-26 09:14:53
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I'm old Joe and I drive oil-carriers. I transport oil through vessels or trucks. Call me the taxi driver of oil, or the oil delivery man.

oil01_400Now let's look at my history of carrying oil around. Oil has been in demand since the industrial revolution, more so in the 19th century, more so in the early 20th century, more so in the mid-fifties. As your oil delivery man my main trajectories were from Saudi Arabia and the Arab Gulf to Europe, North America and Latin America. So my main trajectory was up the Gulf of Aden and up the Suez Canal, through the Mediterranean and through the Atlantic.

Now the 50s were a little shaky when Nasser decided to nationalize the Suez Canal. War broke out and that meant I had to take the longer route, the Cape of Good Hope route, so I charged you more. But there was still no big demand for oil. Now that 67 and 73 war meant I definitely had to take the Cape of Good Hope route, and I tripled transportation prices, otherwise I would not be able to put food on my children's plate.

Then in 1979 Egypt decided the Suez Canal was safe again and I gradually decreased transportation prices, that's how you got the 10 dollar barrel. Then there was trouble in the Gulf of Aden starting the early 90s and I had to gradually charge more. Then there was anarchy in the Red sea and the Persian Gulf starting the early 2000s, meaning I had to go for a safer route again, through the Cape of Good Hope. That's how you got charge over 100 dollars a barrel. There was also chaos in Egypt, and I had to start stacking up cash just in case the whole Suez Canal, Red Sea, Gulf of Aden, Persian Gulf route would be impossible to practice.


I also have clients all over the place now, East, West, you name it, but this Cartel called OPEC wants a fixed price for the barrel. So I had to start charging more so I could make up for the fixed price.


These days, the Red Sea, Suez Canal and Gulf of Aden are somewhat pacified, in the sense that there's a heavy military presence there. The Saudis have modernized their army, and boy are they protecting their land and seas the hard way.


Iraq in the equation? First they had that war with Iran, then that war with Kuweit, then that embargo, then another war, so we don't really use that route. Iran? Now that they're allowed to sell oil and that their part of the world is not filled with pirates, that means we can send their oil East by truck or through the Persian Gulf by sea. That's brought prices down as well. Because in the old days we had to take Saudi oil by sea and ship it East, now with Iran we save a lot of sail time.


Uncle Sam don't dictate me the price of oil, nor does OPEC. I tell them what they owe me. Either way, they know they have to include shipping in their price.





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