So this is now where we find ourselves – back in the seventies. Followers of the business news have noticed the crude oil price push back towards US$70/bbl. Average Joe Car Driver hasn’t noticed so much because petrol prices have not spiked like they did last year. They haven’t spiked, because petrol prices normally lag crude prices. This was not the case in the time of Katrina because at that point refineries had been shut down as well as oil rigs, and the gasoline/crude spread had blown out severely. The usual lag ensures Joe will no doubt notice soon.
Iran was the centre of attention in the seventies and Iran is back in a big way. No one trusts Iran ’s exhortations that its defi ance of nuclear restrictions is based on energy considerations, and not death and destruction considerations. If the US , UN and anyone else with an interest starts really giving Iran a hard time, the expectation is that the next step is oil embargoes.
Iran is the second-largest producer of the OPEC countries, after Saudi Arabia . It produces 3.9mmbpd (million barrels per day). Were Iran to stop selling its oil to the West, a big hole would appear in an already stretched supply side. The result would be a new high in oil prices, and that’s exactly what the market has been quietly anticipating most recently.
And of course it doesn’t stop at Iran . As Merrill Lynch notes, Nigeria crops up next in the list of trouble spots, with terrorist activity having shut down production of about 220,000bpd. Iraqi oil production declined from 2.0mmbpd in September to 1.59mmbpd in December. Venezuela is also an oil producer, and a newly self-declared enemy of the US .
That’s the current list of oil-specifi c geo-political problems. Now let’s consider all the shenanigans going on with Russian gas, the fact that Sharon ’s demise and Hamas’ election does not bode well for Middle Eastern peace, and that Osama’s been back on the box making more threats of attacks against the US . And add to this another hurricane season coming up at the end of the year.
A supply-side shock is quite a distinct possibility.
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