Liberating the Libyans part II, what’s up with the oil price?

Another interesting point about the Libya situation is the issue of what it’s doing to the oil price. Obviously, its going up, but should it be? March/February is a pretty lean time for the oil industry. The two peak times (where loosing a major supplier like Libya could actually lead to shortages) are in June/July when the US summer driving season gets underway and there’s typically an increased demand for jet fuel (all those holiday flights). A 2nd smaller peak occurs in autumn/early winter when people start stocking up on home heating oil for the winter. If shortages do occur in the UK (between now and the summer) it will be more the fault of the chicken little brigade, who panic at the first sign of anything, usually egged on by the Tabloids, who after the panic that they themselves have stoked starts will fill endless more column inches giving out about it while claiming that the panic is all Nick Clegg and the previous Labour governments fault.

So if Libya could go off-line for a few months at this time of year and nothing much would happen, why has the price of oil, both in the markets and at the pump shot up? There are two reasons, the first is pure unadulterated greed. The oil industry spiv’s and speculators, plus the oil majors they work for know they can jack up the price and we’ll believe they’re excuses, bend over and take a good shafting, they’ve been doing it for years and its almost instinctive now to us.

The second reasons is a bit more genuine – fear. The fear being that this crisis could drag on into the summer, when as noted demand will rise sharply. Ordinarily this shouldn’t be a problem, the other OPEC states have such vast reserves they could just open the valves a bit and let loose a lot more oil. However, as I pointed out in a previous posting there are serious concerns as to how accurate these claims of OPEC are. While it is likely that OPEC (particularly the Saudi’s) do have some spare capacity, the question is how much? And how long can they tap into it for? The pessimists say that the answer could well be not a lot and not for very long. If the Libya situation does now drag on and the Saudis fail to make up the difference (they’ll increase production that’s for sure, but we might be talking a few 100,000 bbl/day v’s the 1-2m bbl/day we’d need to replace Libya’s output) then the penny may drop – that the Saudi’s have indeed peaked in conventional oil production and that thus in all likelihood the world has peaked.

While, again, nothing I’ve just said is in anyway proven, the fear stalking the oil markets right now is, what if things pan out this way? Well if it becomes obvious that the Saudi’s have peaked then you can expect increased volatility in the oil markets in the future and much higher prices, so it’s a case of everyone in the oil markets now piling in and getting to the bar before the “happy hour” comes to an end.


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