- Oil Price Predictions and Uncertainty
- Addressing Excessive Banker Bonuses
- Impact of Rising Fuel Costs on Airlines
Arjun N. Murti is a petroleum analyst with a difference: he dislikes petroleum. It is not required for him to be a pinstriped petrolhead, but there aren’t many lentil eaters among the fraternity who spend their days attempting to predict the direction of oil prices.
It has been a sure thing for some time, but not all authorities have been on the same page. Murti has been calling this for longer than most, a courageous posture in a field where, until recently, talking about ‘peak oil’ or suggesting that Western economic policies aren’t sustainable got you lumped in with those who believe the moon landing was faked.
His employer, Goldman Sachs, may have desired his views weren’t made public, but it’s difficult to fire someone for being repeatedly correct.
Murti’s most pessimistic estimate is that the price of a barrel of crude could reach $200 in the next two years. His best estimate for next year is a price a touch lower than $133.
Regarding oil, the term “guess” seems to adequately describe any forecast.
Assume a person is bluffing if he or she asserts with absolute surety what will occur in the oil market. Surprisingly, given its significance, our ignorance is vast. We do not know how much is left, how much is drillable, or how much the major oil-producing nations have on hand (Saudi Arabia provides estimates, but they are unverified).
Murti may be the only oil executive who believes the world running out of oil is a positive thing because it will spur investment in renewable resources and reduce environmental damage.
The oil industry has a lengthy history of attacking those who dare to challenge the established order.
When Shell geologist M King Hubbert predicted in 1956 that the United States’ oil production would peak in the early 1970s, the experts chuckled in jest. Because he was correct, the United States now imports two-thirds of its oil.
Colin Campbell, a former employee of Texaco and BP, predicted a ‘chronic long-term shortage’ beginning in 2010 and stated that Saudi reserves are much smaller than asserted. He has essentially been shunned ever since.
Murti is too prominent to suffer the same fate, but his expanding profile spurred Barclays Capital’s competitors to respond unusually.
BarCap’s oil crew joked about hypocrisy and that Murti’s celebrity would attract cameras and Angelina Jolie. They may be envious, but they are also humorous.
Some absurdly claim that Murti forecasts high prices to attract attention or that his predictions cause them. Prices will not remain elevated unless the majority of investors believe the story to be true.
Commentators who note that the bubble-inflated prices of wheat and barley have recently declined and speculate that the same could happen to oil are ignoring something obvious: We cannot cultivate more oil.
Credit Suisse’s energy team wrote last week that oil should cost between $90 and $150. With such a large disparity, they might as well confess they have no idea.
I won’t guess because the City does, but I’ll bet that reasonable oil price expectations will continue to outnumber supply.
How to rein in these financiers’ large bonuses Ascent of Alistair
The customary torrent of useless protests will follow bankers’ £13 billion bonuses this year. Unions can ‘demand’ an investigation, and the rest of us can fume.
A few weeks ago, Bank of England Governor Mervyn King admitted that banks are run in the interest of bankers and not investors, stating, “Banks have designed compensation packages that provide incentives that are not, in the long run, in the banks’ interests.”
Angela Knight of the British Bankers Association told him to mind his own business, but if reckless remuneration that jeopardizes the public’s financial security is not Mervyn’s business, then what is?
Bankers are compensated for closing transactions, based on volume. The significance of the quality of the deals and the profits produced is minimal.
What is required? Anti-regulation extremists frequently argue that even though the current system is flawed, government intervention can only make it worse.
Complaining about the status quo while saying it’s pointless appears petty, as if the speaker wants his way.
It would be preferable if new laws weren’t necessary to fix this mess, but the banks have had years to put their houses in order and obviously won’t do so unless they’re forced to.
Thus, banks should escrow a major chunk of bonus pay until risks match returns.
If the financier predicts that the new financial instrument or merger will begin to pay off in 2020, then that is when the bonus will be paid, assuming he is correct. If his agreement collapses before then, he will lose his bonus and the escrow funds will pay off his debts.
This is not an attack on the risk and reward system that the City claims it cannot exist without (bankers doing the right thing is impossible), but rather an effort to align the two.
If, for example, Chancellor Alistair Darling proposed this proposal, banks would do what they always do when under attack: pose as a group of powerless, unfairly maligned single mothers and threaten to take away their ball. Allow them.
The Labour Party has already lost the City, so Darling has little to lose.
The concept of escrow is imperfect. It is porous. However, we could do much worse. Typically, we do.
Why airlines are downgrading livestock class
The question was posed during a brief lull in the otherwise constant office activity. How much does it cost to fuel a plane for a round journey from London to New York?
The most prevalent estimate in the region was 15 grand.
According to broker Daniel Stewart, it is now £44,000, up from £29,000 a few months ago.
This is why airlines are failing and why weekend Manhattan tickets cost £200 are gone.
Typically, gasoline costs 25% of a flight, and most other expenses are growing.
A normal 747 can transport 400 passengers, thus each passenger would pay £110 for gasoline.
Airlines need profitable first-class passengers more than ever, and some of them are beginning to ponder if they can justify the expense and if it’s as bad as the butler says in economy class.
To make the front row uncomfortable, airlines would try to make it worse.
Executives of airplanes are currently considering innovative methods to make economy class less comfortable.
