If there’s one thing the Yanks love more than an all-you-can-eat buffet or a semi-automatic assault rifle, it’s their cars. Not the sort of candy-assed toys that we Brits buzz about in, either. No siree. Big lumbering SUVs or RVs with automatic transmission and room in the back for five fat kids, a fridge and cable TV.
Heck, they love their gas-guzzlers so much they won’t take a vacation without them. When Brits trample women and children underfoot in the stampede for a seat on a no-frills flight to first-degree sunburn, booze-induced amnesia, casual sex and rivers of vomit, they call it a holiday.
When Americans shoehorn the little chubsters into the back of their vee-hickle each year and head en masse for the open highway, it’s called the “driving season”. And the driving season, starting on Memorial Day on the last Monday in May, ends today, on Labor Day.
During that quality family time, a nation that drives 50 billion miles a month and burns through knocking on 19 million barrels of oil per day across the year as a whole (nearly twice the rate of the next thirstiest, the Chinese) drives further still and chugs back even more of the black stuff. So much so that traditionally the driving season drove oil prices markedly higher.
Not any more. These days, oil prices are more chilled than a Californian surf dude. They’re pretty high, but volatility is deader than the buffaloes that used to roam the Great Plains. Roughly speaking, in the past couple of years, Brent crude has traded in a tight 20-buck range, from a touch less than than $120 a barrel to a whisker below $100.
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Implied volatility — how choppy the oil market expects Brent to get over the next 12 months — has tanked by nearly two thirds since the start of 2012 and now is lower than ever before.
If efficient markets discover price based on supply and demand, this paralysis looks a teency bit incongruous at first glance, when set against what City-folk like to call the iffy “geopolitical backdrop” these past few years.
On the supply side, the Middle East caught fire in the Arab Spring. Libya, the world’s fifteenth biggest oil exporter, is still frisky. Islamic State screamed into Iraq, the fifth biggest. We’ve had sanctions against Iran, the sixth biggest, over its nuclear programme and sanctions against Russia over Ukraine that specifically target the oil industry of the second biggest net exporter after Saudi Arabia. All the while, crude’s imperturbable.
Talk to oil experts and they’ll give you a fair few reasons why. Malcolm Graham-Wood, the founder of HydroCarbon Capital, counts them off. If 90 million barrels of oil are consumed globally each day, Opec produces a third of them and Saudi Arabia produces a third of Opec’s oil.
Back in June, Saudi thought it was going to have to make up for a total loss of exports from Iraq, about 2.5 million barrels, as jihadists looked likely to overrun the oilfields. That hasn’t happened. Production in Libya of 660,000 barrels a day is coming back on stream and, no matter what the West says, it’s actually tricky to stop Russia’s exports.
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The shale revolution may be building, but America’s still pumping 7.5 million barrels a day and rising. Redneck rules still apply. The export of oil is prohibited to enshrine the right to cheap gas alongside the right to bear arms in the Land of the Freeway and Home of the Motorhome. Suggest otherwise and you’re a watermelon: green on the outside, red on the inside (say it with a Southern drawl).
In short, there is no shortage of oil. Meanwhile, stock markets might be flying, but the world’s economies still don’t look clever enough to cause oil traders to worry about any potential spike in demand. This month, the International Energy Agency, which advises industrialised countries on oil polices, actually cut its forecast for the world’s oil needs this year by 180,000 barrels a day.
All those hedge funds and private punters who waded in back in early July to bet on a spike in the oil price are jumping back out again. The net long position in West Texas Intermediate, the benchmark for US oil, fell by 14 per cent the week before last. In Brent, it’s a similar story.
And when those nine-miles-to-the-gallon motorised monsters are garaged for another year across America today, oil prices will be right there idling beside them.