Bad news from the Baku-Tbilisi-Ceyhan pipeline - an installation that may not normally draw much of your attention, but which is a throbbing artery of global energy supply, carrying vital oil supplies from Central Asia towards a tanker terminal on the Turkish coast. On some remote, sun-baked plain of Anatolia, an explosion sparked a fire earlier this week, temporarily cutting the flow through the pipeline.
But guess what? Here's the good news: the oil price did not zoom upwards in response, not a blip, barely a flicker. Actually the price of a barrel of crude has been falling: from a peak of $145 in early July, it came down to $117 and was trading yesterday at $120. That's almost a 20 per cent drop in little more than three weeks.
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| A return to relatively normal oil prices would take the sting out of inflation |
If the trend continues into September at anything like the same rate of descent, most of the inflationary spike of the past 12 months will miraculously have been sliced away. This is a dramatic reversal, and it is worth trying to work out why it is happening and what it means.
Just possibly, it means that what investors refer to in shorthand as the great "oil up" story has finally revealed itself not as the fundamental reflection of scarce supply that its adherents liked to claim, but as a simple, speculative bubble that was always going to burst.
The market's conviction that oil prices were set on an unstoppable upswing was underpinned by a set of mantras to be chanted daily before breakfast by anyone hoping to make money by following the crowd: insatiable demand from China; indolent Opec sheikhs unwilling to open the supply taps; that nasty Vladimir Putin playing political hardball with Russia's oil and gas resources; those mad Iranian mullahs hell-bent on nuclear conflict; and beyond all these, the looming threat of "peak oil", the inevitable moment when Mother Earth's carbon-fuel gauge starts pointing towards empty.Read More
