THE alarm first goes off as the satellites transmit pictures of the clouds that start forming in the middle of the ocean. Over several days, the clouds begin to take on a definite shape, signaling that a tropical depression may be developing. Measurements are made of sea temperatures and wind speeds, as well as the direction and forward speed of what is now a tropical storm.
If the intensity of the storm increases, it may be classified as a typhoon.
Tropical storms and typhoons are far from unusual. For example, from 1959 to 2011 there were 1,419 tropical storms and typhoons in the northwest Pacific region, of which the Philippines is a part. On average, 27 of these storms are formed every year. In 1965 there were 11 super typhoons; in 1974 there were none. In 1972 there were eight super typhoons and 20 regular typhoons. In 2013 there were 18 super typhoons and only eight typhoons.
Potentially hundreds of miles in diameter, with winds blowing at a hundred kilometers per hour, it seems, to a puny human on the ground, that nature has released a chaotic and unprecedented event.
However, we know exactly the conditions necessary for a typhoon to form in the same way that we can say that 1+2=3. There is no secret as to the why and how of a typhoon. While a high-magnitude storm may seem chaotic, it is a well-ordered event resulting from a specific set of conditions. Furthermore, the frequency of the storms, typhoons and super typhoons follow a trend. A typhoon is not the result of chaos when you understand it.
The global financial and asset markets are wild and crazy right now, but they are not chaotic.
In the Philippines the most active typhoon season since 1945 was in 1993, when 19 typhoons barreled through the country. There was only one typhoon in 1958.
The massive drop in oil prices over the last few months is no more a “bubble” than the record 11 super typhoons or the 19 regular typhoons that hit the country in 1964 and 1993, respectively.
The conditions existed for 19 typhoons in 1993 in the same way that those conditions did not exist in 1958.
Oil prices have been in an uptrend since the 2010 low. As prices rose, combined with low borrowing interest rates and advances in technology, oil production increased.
In 2010 daily production was 73 million barrels. In 2014 it went up to 77 million barrels, representing an increase of 5.5 percent. Here is the reason the crude oil price has fallen:
Except for a brief period in 2012, demand has been greater than supply every month since the first quarter of 2009. In the fourth quarter of 2013, supply rose above demand and has been higher ever since.
Interestingly, since June 2009, when crude oil was $140 a barrel, the price has gone down to $70, then to $110, then to $85 and then to $110 again, when the supply-demand equation shifted to higher supply than demand.
In June the price of crude oil broke lower, and has not stopped going down since. That is the trend. The law of supply and demand had taken prices higher, and is now taking prices lower.
We would like to think that there is a huge and unbreakable cartel that controls prices. But in oil, as in every business, there is no absolute monopoly; there is always one seller that will lower the price to sell more of its product and gain market share. There is no “official” oil price from the Organization of the Petroleum-Exporting Countries (Opec). Furthermore, there are 74 countries that export oil, from Saudi Arabia at 8 million barrels a day, to Bolivia, which exports 61 barrels each day. And nearly every nation produces some oil. Did you know that China produces more oil every day than every Opec member except Saudi Arabia? Russia produces more oil than every other nation on earth.
The current decrease in the price of crude oil is no more anomalous than the ups and downs in the number of typhoons that hit the Philippines annually.
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