THE WHOLESALER® —APRIL 2011•


ON THE PVF PULSE


when the price per barrel of oil topped $145. As oil fell to $32 per barrel in early 2009, new activity was halted, as the producers awaited a comeback in global demand as well as further cost-effective refine- ment of the extraction process. With the comeback in commodity


pricing generally, and oil specifically, the producers are preparing another massive expansion of their ongoing and newly-started oil extraction process activities. The vastly higher potential estimate alluded to by the “oil sands” executives takes into ac- count the vast stretches of acreage that contain the raw material from which the oil sands are extracted. With the extraction process com- pounded by the refining of oil derived from this method, the U.S. Environ- mental Protection Agency is looking at the oil pumped in from Canada with a jaundiced eye due to the excess car- bon dioxide and greenhouse gas efflu- ence this process generates into the Canadian atmosphere. The EPA con- siders effluence a global issue, no mat- ter from where it emanates. The concern this attitude has caused


the Canadians has opened the door to the Chinese, who are financing a pipeline to Vancouver and expanded shipping facilities. They are only too happy to take over from the U.S. if and when the opportunity presents itself.


Confusing daily oil prices mislead observers


Those observers who follow the


daily trend of oil prices — or even use them as a basis for making energy


investments — are confused by the disparity between prices in the ICE futures exchange and the New York Mercantile Exchange, which are a source of increasing confusion. In early February, the NYMEX


crude price hovered around $88 a barrel, while the ICE-traded Brent


Venezuela, the Gulf of Mexico, and lately the refined product piped in from the converted oil sands of Canada’s Alberta Province. The ICE’s Brent contract, more re-


flective of the “sour crude” from the Mideast, especially Saudi Arabia, is not focused on particular supply lev-


With the comeback in commodity pricing generally, and oil specifically, the producers are preparing another massive expansion of their ongoing and newly-started oil extraction process activities.


The vastly higher potential estimate alluded to by the “oil sands” executives takes into account the vast stretches of acreage that contain the raw material from which the oil sands are extracted.


contract pierced the $100 mark — es- tablishing a record chasm of $13 be- tween them. Historically, these two contracts have traded within $2 of each other. But the major difference is that the


NYMEX predominantly reflects the inventory level of the oil stock prices in the U.S. central import storage point in Cushing, Okla. These tend to represent the light sweet crude, which is easily refined into such derivatives as heating oil, jet fuel, gasoline, diesel fuel, etc., and usually emanates from such areas as Nigeria,


els such as Cushing. This makes it more reflective of the general level of global supply/demand inequities. Therefore, the huge demand emanat- ing from the Southeast Asian quad- rant, especially China, exercises an overwhelming impact on the Brent crude price structure. Access to Cushing’s overload has


given an unprecedented boost to re- finers, who benefit from that Okla- homa super depot’s low cost. They can sell their finished products at prices reflecting the $100 plus Brent costs.


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This state of affairs is especially confusing since the subsequent refin- ing process on which the sour crude is dependent adds substantial addi- tional costs to the Brent products and their eventual derivative usage. Cur- rently, there are rumblings afoot to eliminate the NYMEX pricing, which has been the paramount structure as- sociated with U.S. stock market re- ports since 1983.


Copper prices reach unexpected all-time peak Since time immemorial, the inten-


sity of America’s domestic construc- tion industry had as its tell-tale barometer the price of copper. In fact, a pre-recession all-time high of $4 a pound was reached in mid-2008, just before the ignominious economic im- plosion, that still persists in the resi- dential construction sector. But after sinking to slightly over


$1.20 a pound early in 2009, the red metal — which is used in everything from automobiles to communications equipment — has spiraled to a near four-time multiple, closing recently at $4.60 a pound. With the construction-oriented


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tors T


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copper usage, the bulk of its domestic demand, still bumping along in the doldrums, the answer to this obvious disparity is China. Also to a lesser ex- tent are India, Indonesia, Vietnam, Taiwan and South Korea. Although the Chinese economic miracle has been written about ad nauseam, the pace of that society’s conversion to consumerism, and its accompanying construction is leg- endary. To put this awesome meta- morphosis in perspective, the pace of that nation’s building activity stag- gers the imagination. Less than 10 years ago, a visita-


tion by Chinese city mayors — in which I had the privilege of partici- pating — elicited the fact that a city the size of Indianapolis (population 1 million plus) was built every three months by the Beijing-controlled economic giant. Today, this building frenzy has es-


calated to a new metropolis the size of New York City (8 million) under construction every month. Much of this frenzied internal activity is a re- flection of China’s governing brain trust, which is heading off internal convulsions among its teeming 1.4 billion population by upgrading its middle class and bringing its agrarian peasantry into the 21st century con- struction mainstream. It’s an example that should be copied by the Middle East’s Islamic chieftains.


n Morris R. Beschloss, a 55-year vet-


eran of the pipe, valve and fitting in- dustry, is PVF and economic analyst emeritus for The WholesaleR.


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