“Oil pricing is much more in line with the equity markets now and far less subject to traditional supply-and-demand pressures. Oil prices – and the prices of the fuels refined from it – now react more and more to other economic trends than pure supply-and-demand factors.” –Denton Cinquegrana, editor-west coast spots for the Oil Price Information Service (OPIS)
You might think – at least on the surface – that the events unfolding now in Egypt, as protests mount to remove President Hosni Mubarak from power, have little to do with trucking here in the U.S. That my friends, I am most sorry to say, just ain’t so.
For today, the world is so highly interconnected in “real time” that even the smallest events in one corner of the globe can rapidly impact everyone else.
Look at what’s happening to oil prices, much less the price of other commodities, right now. In response to the unrest in Egypt, prices are suddenly spiking – even though Egypt produces almost no oil.
Now, while Egypt does control the Suez Canal – a major trade corridor through which a good portion of the world’s oil is shipped – the Canal hasn’t been forced to close as of yet due to the protests.
Indeed, one would think that even if it DID close, oil tankers and other freight-carrying ships would be re-routed into alternate ocean lanes – perhaps delaying deliveries here and there, but not creating a total shutdown in global trade.
[Here’s an Associated Press report on the worldwide economic fallout now occurring due to the unrest in Egypt.]
Yet like the legendary butterfly of the Sahara desert, whose tiny fluttering wings set in motion winds that eventually build into a Hurricane lashing the eastern seaboard of the U.S., the now almost weeklong protests in Egypt are touching off global economic unrest – if not also helping fan the flames of revolt in other Middle Eastern nations long under the heel of oppressive regimes.
Denton Cinquegrana, editor-west coast spots for the Oil Price Information Service (OPIS), put this in perspective for me late last year as we discussed why oil prices today seem to behave in ways totally at odds with traditional “supply and demand” factors.
For example, he told me, a fleet might see that diesel fuel inventories are high, yet be paying five cents more per gallon than the week before. The reason is that the price hike may be largely in response to a run-up in the stock market, or a positive jobs report, or any other financial information that causes the equity markets to move higher, Cinquegrana (at right) noted.
“That’s why truckers need to take a ‘macro-economic’ view of fuel pricing now,” he stressed. “How the stock and financial markets behave can cause oil prices – and thus diesel costs – to rise or fall.”
[And what about the world’s future supply of oil? Are we in danger soon of running out? Foreign Policy TV examined this very issue of “peak oil” a few years ago, right before the infamous ‘Summer of 2008’ when oil topped $150 per barrel.]
Now, after what we’re seeing unfold in Egypt, you can “social unrest” to Cinquegrana’s mix of factors as well.
It’s just more evidence that today’s trucking executive cannot solely focus on the ebb and flow of freight here in the U.S., whether their fleet consists of a thousand trucks or just a single tractor.
They’ve now got to constantly be looking at the “global picture” if you will so they don’t get blindsided by fuel price increases and other unpleasant surprises.