Brent Crude: $117
WTI Crude: $97
Trying to understand the price differential between WTI & Brent (see chart) is not that difficult, Brent Crude currently trades at a premium of some $20. This large disparity has exited now for several months since the civil war started in Libya. Brent is far easier to refine than WTI and therefore should in theory always trade at a premium, but not by this much. Historically Brent Crude has traded almost on par to maybe several dollars higher. Civil war has effectively reduced supply and Libya provides 3% of global proved oil reserves. Some 85% of oil is exported to Europe and in January 2011 Libya exported over 1.1mbpd. It's expected that bythe end of 2012 the Libyan oil disruption will be over and the Libya oil capacity will be back to normal.
I usually propose conspiracy theories on my Share Price Blog so here's another one. Europe debts to GDP are in bad shape, that includes Britain. Governments don't want to be seen increasing taxes when economies are supposedly weak (hmm stock markets up 100%, don't they track economies?) and unemployment is over 5%. Now what's a great way to deliver a stealth tax, I'd say ramp your oil and collect your taxes. What better an opportunity to use your agents in a foreign country build up a civilian frenzy against a dictatorship government. Kill two birds with one stone and get additional benefits of new improved oil contracts, improved oil supply and hook your banks into the country in question, Libya in this case. Civil war effectively assists in high oil price = increased taxes, lucrative oil deals for your local Oil companies = more corporate taxes, banks integrate into Libya post resolution of crises = credit provided to Libya = profit on debt repayments = more corporate tax income. But this must not be taken as a negative as it does seem that most Libyan civilians want Gaddafi out, the same was said for Iraq but did it work out? It cost western governments a fortune, but is that not classed as a stimulus to your economy, yes it is. But at some point where you've used wars to create a stealth stimulus and inflation, countries have been far lower than 100% debt to GDP's. Everyone G7 or some G20 countries are approaching the 100% level, we where last at these levels at the end of WWII. Therefore it's untested (other than Japan), to go beyond such a level in G7. Greece is a basket case we don't want to go their. The ratings agencies with razor teeth are looking up at G7's walking across a tight rope, any wobbles and the teeth start gnashing.
Lets hope Libya does not become the next Iraq war, for if that becomes the path our governments take, it will undoubtedly have been manipulated to be so, to effectively create mega price inflation.
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