Oil is prone to supply disruptions, whether from hurricanes or border wars.

For years, the Organization of the Petroleum Exporting Countries (OPEC) has argued that oil prices are being driven by external factors such as the weakening dollar and speculators--and are thus out of the organization’s control. And for years, skeptics have dismissed such claims as cover for the cartel’s greedy unwillingness to pump more oil.
Recently, however, even the skeptics are acknowledging the price-pushing power of non-OPEC forces in the oil market--forces that could be doing importers as much damage as anything the organization ever tried, The Christian Science Monitor reported.
The most obvious is the sagging dollar. Because oil is priced in dollars, and because the dollar’s value has fallen nearly a third against major developed-country currencies since 2002, Americans are spending more--perhaps as much as $20 more--for a barrel of oil.
And that pales against what speculators might be adding to the price.
Although all commodities can be manipulated by speculation, oil is especially vulnerable.
First, oil is prone to supply disruptions, whether from hurricanes or border wars. Second, the global oil system is highly opaque. It has so many pieces--producers, refiners, shippers and distributors--that no one knows precisely how much oil is in any given place at any given time.
This means that estimates of how much excess inventory is in the system--and thus, how big a buffer we have against a disruption--can change rapidly.
So when the United States Department of Energy, for example, announces a “surprising“ decline in US oil inventories--and by implication a smaller buffer --the oil market responds by driving up prices.
Oil is, in other words, an inherently volatile commodity and thus highly attractive to traders, who profit by betting on the daily and even hourly fluctuations in price.
And while there’s nothing criminal about betting on price, it is a problem when the bets themselves influence the price. If enough traders gamble that oil prices will rise over, say, the next 30 days, then the price of 30-day oil futures contracts will rise, which eventually will pull up the current, or spot, price of oil--the classic self-fulfilling prophecy.
And because traders are always looking for anything that might warrant a price increase (and thus, the placing of a bet), the smallest events--unrest in Nigeria, for example, or even upbeat economic news (which implies greater oil demand), become potential catalysts for a price rise.
Just how large this “speculative premium“ is has become a matter of intense debate.
Historically, says Fadel Gheit, a veteran oil analyst at Oppenheimer & Co. in New York, oil prices have run about three times what it costs to physically extract a barrel from the ground.
Given that these extraction costs run between $15 to $19 a barrel worldwide, the “correct“ price should be somewhere between $45 to $57. Indeed, as recently as 2005, OPEC itself claimed that $45 was a reasonable price.
If that’s true, then we’re paying a speculative premium of up to $45 for each barrel, or about $1 for each gallon of gasoline.
If nearly half the price of oil isn’t justified by fundamentals such as supply and demand, then sooner or later the price must fall.
In theory, that ought to mean that a trader willing to bet against the market by buying an oil futures contract for a lower price, should make a fortune.
But in recent years, says Gheit, “anyone who has bet against the market has had their head handed to them“ because the price keeps rising.
Why? The answer is complex. First, even with a speculative premium, the oil market is still out of balance. Demand for oil, especially in booming China and India, is rising faster than supply.
And tight markets are prone to perturbations--be they caused by political events, hurricanes, or, more recently, speculators’ bets.
What, if anything, can be done about the speculator premium? Various commentators have called on Washington to regulate commodity speculation or release some of the nation’s Strategic Petroleum Reserve and thus flood oil markets.
But motorists shouldn’t hold their breath waiting for policy action. When it comes to oil, our lawmakers have an abiding faith that the markets will sort themselves out; that when gas prices get high enough, demand will fall, and so will price.
Meanwhile, Washington’s free-marketers should bear in mind that the cost of the speculator premium goes beyond angry motorists.
Every dollar increase in oil prices represents a huge bonus for oil exporters, not all of whom can be trusted to use it wisely.

Shell, the oil company that recently trumpeted its commitment to a low carbon future by signing a pre-Bali conference communique, has quietly sold off most of its solar business.
The move, taken with rival BP’s decision to invest in the world’s dirtiest oil production in Canada’s tar sands, indicates that Big Oil might be giving up its flirtation with renewables and going back to its roots.
Shell and BP are among the biggest producers of greenhouse gases in the world, but both have been keen to paint themselves green through a series of clean fuel initiatives, Guardian.co.uk wrote.
BP, under its former chief executive, John Browne, promised to go “beyond petroleum“ while Shell has spent millions advertising its serious interest in the future of the environment.
But at a time when interest in solar power is greater than ever, with the world’s first “solar city“ being built at Phoenix, Arizona, a small announcement from Environ Energy Global of Singapore revealed that it had bought Shell’s photovoltaic operations in India and Sri Lanka, with more than 260 staff and 28 offices, for an undisclosed sum.
The sell-off, to be followed by similar ones in the Philippines and Indonesia, comes after another major disposal executed in a low-key way last year, when Shell hived off its solar module production business.
The division, with 600 staff and manufacturing plants in the US, Canada and Germany, went to Munich-based SolarWorld. Shell has however formed a manufacturing link, with Saint-Gobain, and promised to build one plant in Germany.
The Anglo-Dutch oil group confirmed that it had pulled out of its rural business in India and Sri Lanka, saying it was not making enough money.
“It was not bringing in any profit for us there so we transferred it to another operator. The buyer will be able to take it to the next level,“ said a spokeswoman at Shell headquarters in London.
The oil group said it was continuing to move its renewables interests into a mainstream business and hoped to find one new power source that would “achieve materiality“ for it. Shell continues to invest in a number of wind farm schemes, such as the London Array offshore scheme, which has government approval.
Shell has also been concentrating its efforts on biofuels, but declined to say whether it had given up on solar power even though many smaller rivals continue to believe the technology has a bright future.
Environmental groups have always accused Shell of using clean energy initiatives as “greenwash“ to deflect criticism from its core carbon operations, especially tar sands.
The latest pull-out has annoyed rival business leaders at London-based Solar Century and local Indian operation, Orb Energy, who fear the impact of a high-profile company selling off solar business.
Jeremy Leggett, chief executive of Solarcentury and a leading voice in renewable energy circles, said Shell was undermining the credibility of the business world in its fight against global warming.
“Shell and Solar Century were among the 150 companies that recently signed up to the hard-hitting Bali Declaration.
It is vital that companies act consistently with the rhetoric in such declarations, and as I have told Shell senior management on several occasions, an all-out assault on the Canadian tar sands and extracting oil from coal is completely inconsistent with climate protection.
“This latest evidence of half-heartedness or worse in Shell’s renewables activities leaves me even more disappointed. Unless fossil-fuel energy companies evolve their core activities meaningfully, we are in deep trouble,“ he said.
Damian Miller, former director of Shell Solar’s rural operations and now chief executive of Orb Energy, said Shell was missing an opportunity by pulling out at a time when renewables markets were starting to mature in the developing world.
He alleged some customers were complaining of being abandoned by Shell and worried about the servicing of equipment they could expect from Environ.
“We see former Shell customers who are highly disappointed not to be receiving proper service for the solar systems they have invested in.
These customers have often invested 20-30% of their annual income in a system to ensure they have some minimum amount of lighting and access to radio, TV, or a fan,“ said Miller.
He added that the oil majors, including Shell, had invested time and energy in promoting their plans for renewable energy in the press and on TV, but were not able to lead the transformation the world needs towards renewable energy and energy efficient solutions.

The safe distance of wind power plants from electric power lines is three to five times the diameter of a rotor.

Commercial association the Czech Society for Wind Energy (CSVE) has objected to a proposed amendment to the energy law that calls for an increase in the distance between wind power plants and electric power lines.
The association claims it will put a halt to half the wind power projects currently under development in the Czech Republic,Cbw.cz reported.
The CSVE, an association of companies active in the wind power sector, issued a press release protesting the amendment Dec. 6 while the amendment was still at the interministerial consultation phase and controversial passages could be altered or left out.
Their press release objects particularly to a section of the amendment that calls for wind power plants to be located at a distance of at least three times the diameter of a rotor from electric power cables.
Frantisek Sustr, head of the CSVE, claims the amendment has no technical basis and that valid safety restrictions already exist for wind turbines. These stipulate that turbines must be located at least 20 meters from electric power lines.
The Ministry of Industry and Trade (MPO), however, disagreed. “The distance has to be sufficient and safe. It is not a Czech fabrication; the same rule is applied in neighboring Germany, which has a greater wind power tradition [than the Czech Republic]. There the reason [for applying the rule] was safety too,“ said Tomas Bartovsky, spokesman for the MPO.
Czech electricity grid operator CEPS has also had an evaluation made that supports the MPO’s position. The study reported that the safe distance of wind power plants from electric power lines is three to five times the diameter of a rotor.
The CSVE said the amendment could jeopardize nearly half the current wind power projects planned for the Czech Republic. Sustr said it will become increasingly difficult to find appropriate locations for wind turbines as this is not the only legal or geographical restriction on building wind power plants in the Czech Republic.
“We consider Sustr’s estimate to be exaggerated,“ Bartovsky said in response to the CSVE’s claims, adding that the amendment would cancel perhaps a small percentage of projects, mainly in areas where there is a high density of power lines such as around the nuclear power plant of Dukovany, South Moravia, but nothing near 50 percent.
But industry insiders said Sustr is right to claim that wind energy projects already face a myriad of natural and official restrictions. “Investors [first] have to consider whether it is possible to get planning permission,“ said Miroslav Klose, CEO of wind turbine manufacturer Wikov Wind. Planning permission involves numerous factors.
The plant has to meet required noise limits, has to be a reasonable distance from the nearest population center, must not be built in a protected landscape area, or in a corridor where migrating birds fly, among other restrictions.
“The other thing is that investors have to present a good case on the issue of whether the plant will or will not affect the surrounding landscape and scenery,“ Klose said, adding that whether or not the plant will look good in its location is a very subjective opinion and hard to back up with actual evidence.
Another geographical factor that has to be considered is the strength of wind in the area. “Mountain locations are best, but these are mainly in protected landscape areas.
The CSVE would not support projects in those areas. From the unprotected areas, the most appropriate [for building a wind-power plant] are the mountain ranges of KrusnŽ hory [West Bohemia] and in South and North Moravia,“ Sustr said in an interview for public service broadcaster Ceska televize.
Finally, there are important economic and technical considerations. An investor has to find out who owns the piece of land, where the plant should be constructed, and whether there is enough capacity in existing power lines to transfer the electricity produced, Klose explained.
“There can be problems when the land is owned by more than one person or organization,“ he added.