Just as the Baltic Dry falls through the floor (a reliable indicator of global slowdown), our good friends Gazprom cut their prices again, and commodities soften generally, oil is once again in the spotlight. And not in a good way.
Yes, at home and abroad the prospect of trouble at t'pump looks to be on the cards. Starting with Petroplus*/ Coryton: this may provide an excuse for a price-hike in the South East, but in reality its effect will be limited. When the owners of a conversion-process asset like a refinery go under, the creditors step in smartly to ensure it keeps running, just to generate whatever basic turn is there to be had: no-one wants to see the cashflow dry up. We've seen it a dozen times with power plants (in the dire period 2002-04, for those with short memories). What tends to happen is that the asset, which should be run on a highly-optimised basis when in the hands of a proper owner, slips into a dumb but still effective mode of operation, with reduced but still positive margins.
If it turns out this isn't possible, i.e. only a hyper-optimised refinery is profitable, it will mean there is a surplus of finished products (petrol etc) anyway. So no big worries just yet.
The main story, though, is in the Middle East where Syria is in turmoil, Iraq is nudging towards civil war, the Iranian war-drums are beating, and the carrier groups are massing once again. A war-weary western public may be forgiven for groaning déjà vu and assuming it's just another galling waste of blood and treasure to satisfy the American electoral process.
But from the C@W standpoint, is there something really rather new and interesting afoot ? The possibility that oil might start being priced in gold is not hot news, but could be a serious development - and one that might make the US pause for careful thought. I have previously highlighted the forthcoming Chinese Pan-Asia Gold Exchange as a potential Chinese strategy to supplant the dollar: lots of countries are looking to a post-dollar world: the euro is hardly a candidate anymore and oil-for-gold would be a very logical step along the way.
The ramifications of this will be many. Here's one: if this catches on, a lot more countries and companies will potentially be in the market for gold hedges (just as they are for oil and dollar hedges, as a matter of day-to-day risk management). But the paper (forward) gold market is, allegedly, one of the most heavily manipulated in the world (along with silver and the Swissie and oil and ...) - hmm.
Any other suggestions as to how oil-for-gold would change the world ?
* Petroplus was always a quirky operation. The cleverest thing they did in the last decade was develop an LNG import terminal in Pembrokeshire, and planned to do several more around the Atlantic basin - they are very easy to build, even for a company whose main business at the time was oil storage tanks. But they sold this nascent LNG business, '4Gas', to Carlyle in order to concentrate on becoming a 'specialist refiner' ... hah! Should have stuck to tankage.