Sunday, April 30, 2006

Oil Bet Update: the storm clouds gather

Storm clouds on the political and meteorological front are starting to spook the markets, says the Observer:

The growing international crisis over Iran's nuclear programme could trigger a catastrophic oil price spike, sending crude prices over $100 a barrel, senior Wall Street analysts are warning.

With prices already at around $72 a barrel, such an increase could mean drivers facing prices of 110p a litre on forecourts, according the the Petrol Retailers Association. Last week Lord Browne, chief executive of BP, warned that prices could rise to £1 as he unveiled bumper $5.27bn profits for the first quarter.

Shell is also expected to announce close to record numbers next week, with analysts expecting profits around $5.57bn, driven largely by the oil price.

A single political shock could be enough to send oil markets into panic, said Adam Sieminski, senior energy economist at Deutsche Bank in New York. 'If we have one more big problem we are going to have triple-digit oil prices.' Sieminski points to confrontation with Iran, a worsening of the situation in Iraq or a recurrence of devastating hurricanes in the Gulf of Mexico as potential catalysts for a major rise.

When supplies are plentiful, such politial mischief-making by oil producers will only hurt themselves. But when they are tight, every oil state dictator with an axe to grind can command the attention of the world. In such times the fear multiplier will go off the charts. Never underestimate the fear factor.


Blogger Harry Eagar said...

A lot more people use oil than did in '73, but those who used oil in '73 and are still around use less, per capita.

So it's hard to say what '73 says about '06, but I was there, and there wasn't much panic.

I lived in Norfolk, Va., then, one of the few places that (more than usually) irrational behavior broke out. Lines for gas stretched for a mile, people would top up when they had used less than a gallon.

Me, I parked my VW and rode the bus to work for a couple weeks. It was slightly inconvenient (by late afternoon the usual 20-minute intervals had gotten screwed up, so sometimes I had to wait an hour), but no big deal.

According to 'The Box,' the proportion of the value of world manufactured goods attributable to transportation has fallen to 8%, with perhaps half that fuel.

There's a tremendous cushion of discretionary petroleum use that can be mobilized, with some lag time, if oil supplies tighten.

Local suffering might be intense if, say, cruise ships are laid up. But the world wouldn't end.

April 30, 2006 12:01 PM  

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