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Friday, December 5, 2008




Wishing Well

Last updated: March 10, 2009

December 5, 2008


President Ahmadinejad was reported to have fallen ill a few weeks ago due to his heavy workload. A great patriot of his country mr. President never spares himself when it comes to serving the nation. Ahmadinejad had eventually reappeared on the public scene vowing that nothing can stop Iran and its nuclear program. A few days ago the president had the following to say to his people baffled by the country's unending inflation, the highest in the Middle East, and persistently high unemployment.


By NASSER KARIMI, Associated Press Writer – Wed Dec 3

. . .

"Suppose we plan to base next year's budget on $30 per barrel of oil; we have to leave a major part of our projects behind. But we are obliged to set it on $30-$35 because we do not decide the price of oil on the global market," the president said.

Source

This blog continues wishing well to mr. President and hoping for his speedy recovery.


December 13, 2008

More Wishing Well

As more details are emerging about the recently announced reform of China's energy market the picture becomes more clear. In recent years the government was hiking gas prices several times in line with the mess that was engulfing the oil market. However when the the price of oil took a 70% plunge, the Chinese government has "forgot" to lower its prices accordingly with Chinese drivers eventually ending paying almost twice as much as their American counterparts. Now we know why.

The proposed energy reform that may take effect as early as January seems to have been designed with one goal in mind - to take advantage of the current situation in order to massively hammer on the domestic demand for gasoline and other oil derived products. The reform includes a retail fuel tax on both gasoline and diesel, more flexible pricing to better reflect global prices and possibly phasing out subsidies to local fuel producers. In short, the government will let the price drop but not before these measures are put in place to prevent the price from spiraling down out of control. Needless to say, the government did not promise anybody that the taxes can be revoked and subsidies returned should the market reverse its decline.

Meanwhile the Saudis have been cutting supplies to the market at an accelerating pace after the Saudi monarch let the world know what his country thinks should be a fair price for oil. It's impossible to fail to notice that $75 per barrel will make happy not only Brazilian ethanol producers who sell profitably even at $40-50 per barrel. The heavily subsidized US corn ethanol growers will find the Saudi ideal price very ideal indeed. This makes one start wondering whether the Saudis understand that their desired price leaves the market biggest importer with no long term incentives to continue buying their oil? Let alone at a time when this importer is about to be taken over by a president whose close circle is densely packed with ethanol hawks, including Barak Obama himself.

In view of the above, this blog is extending its well wishing to Saudi Arabia... and actually to all peace loving people of the Middle East.


March 10, 2009

And More...

US Agriculture Secretary Tom Vilsack said the mandatory ethanol blend can be quickly expanded to 12-13% while the feasibility of 15-20% blends is being studied, and on this Vilsack seems to have support of other Democrat leaders including the House Speaker.

House Speaker Nancy Pelosi, D-Calif., said she also supports raising the cap after a separate speech to the group.

"It seems to me we should be able to do that," she said.

Source: Associated Press

The US ethanol industry, heavily hit by the collapse of oil prices and drying up of credit lines, has been lately lobbying for moving the blend below what's generally considered the upper safe limit for blending ethanol in regular engines. A bilateral free trade agreement with Peru that took effect in January this year is bound to exacerbate the situation of the industry by breaching protectionist barriers the US regulators have been erecting in recent years to block access of cheap Latin American ethanol into the country.

Vilsack's recent announcements indicate he is just all too happy to be helpful. However, any decision to expand the blend to anything between 15% and 20% is bound to have far reaching consequences for the future of the energy market in the US. For starters, the ethanol camp and interest groups are becoming huge and even more powerful. Two, the US is getting another few years to keep the local ethanol industry expanding, though it's hard to see this moving beyond the 20% blend. Three, it's not clear how damaging to regular engines the 20% blend can be, but it may shorten the lifespan of some currently deployed engines which in its turn will give a boost to the auto industry and paradoxically accelerate adoption of flex engine cars among US motorists.

But the most important of them all is of course a possible impact this decision may have on energy markets outisde the US and the price of oil. This second phase of ethanol expansion, if it does start, may happen to be markedly different from the previous one. More aspects of the RFS should become mandatory this and next year, until this year gas stations had to comply with RFS standards only when gasoline was getting more expensive than ethanol. Much of the effect of the first stage was dissipated in replacing MTBE. The next stage will be a pure gas replacing one. Throw in the world's slowing demand for oil, phasing out of domestic fuel subsidies by some of the OPEC members (this may free more oil for global markets) and for a few next years this region may well be teeming with more candidates for our well wishing.

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