So far there is still a worldwide surplus capacity of oil so the high prices in the fiftyfive dollar range reflect at least a fifteen dollar fear and anxiety premium rather than a supply shortage forcing prices up.
Of course, the U.S. has few refineries so putting even one (as the BP one in Texas City) out of service can hike prices because of a local shortage. If terrorists are in fact targeting refineries, that could mean both gas lines and high prices in CONUS with significant short term economic impact until security procedures and infrastructure investment result in high levels of security for the petroleum infrastructure. David Bier http://www.forbes.com/2005/03/24/cz_0324oxan_oilprice.html Global Strategic Analysis The Geopolitical Influence On Oil Prices Oxford Analytica, 03.24.05, 6:00 AM ET Surplus capacity has eroded from an excess of some 6 million barrels per day at the start of 2002 to between 1 million and 1.5 million b/d today, depending on the source of the estimate. This decline, while partially the result of demand strength and poor non-OPEC performance, also stems from political events. The war in Iraq has had a significant impact on surplus capacity since 2003, and, according to the International Energy Agency, Iraq's oil production continues to fall. In January, production had fallen to 1.79 million b/d from 2.25 million b/d in September. There was only a slight increase in February. This article is part of Oxford Analytica's Daily Brief Service. Click here for information about how to subscribe. The fact that Venezuela has yet to recover from the 2002 strike by employees of its state oil company PDVSA is also affecting surplus capacity. According to estimates, the country is currently producing some 2.7 million b/d, compared with an average of 3.2 million b/d before the strike. Nevertheless, Organization for Economic Cooperation and Development inventories in January and February were well above the average of the last five years. Additionally, at its meeting in Iran last week, OPEC announced an immediate increase of 500,000 b/d in its official production quota to 27.5 million b/d (in reality, OPEC was already producing that level in February and this month appears to have already exceeded it). Despite strong demand and doubts over non-OPEC supply with Russia running into problems, supply and demand balances cannot justify the current high price levels. Thus, attention is refocusing on the political variables that affect oil prices. Specifically, there is growing fear of potential production outages in several parts of the world. Concerns persist over the stability of Saudi Arabia--even rumors of military disturbances in the Kingdom are enough to produce a price response. Nigeria remains extremely volatile, with sporadic loss of exports due to domestic upheavals and strikes, and there are growing concerns about Russia in the aftermath of the Yukos case. Furthermore, in the still unlikely event that Israel and the U.S. lead a strike on Iran, the Middle Eastern nation would probably retaliate with an oil embargo. The U.S.-Saudi relationship has a large impact on the global oil market and has generally been one of mutual self-interest. Saudi Arabia needed U.S. military protection and, in return, used its excess capacity to manage oil markets and ensure relatively low and stable prices. The terrorist attacks of Sept. 11, 2001, however, inflicted serious damage on the relationship, which has yet to recover. Many Saudis feel growing resentment at they way they feel they are being treated by the U.S. at both the diplomatic and individual levels. The Saudi policy of a lower stable price, which has prevailed since 1985-86, was designed to encourage consumers to move back to oil following the price shocks of the 1970s. The policy of consumer governments to raise sales taxes on oil products, a trend now apparent in the developing world, has seriously undermined this strategy by removing Saudi incentives to minimize prices. Now there are clear signs that Saudi Arabia has raised its target price for crude. It had been at the midpoint of the now-defunct OPEC bands at $25 per barrel, but its new target price is not clear. A consensus of analysts has been suggesting a floor price of $35. However, Oil Minister Ali Naimi was quoted as saying last week that he wanted the price to be between $40 and $50. The reality is that Saudi Arabia still needs U.S. military protection, and the Kingdom has gone to great lengths to try to bring oil prices down from their record levels. This has included pushing for greater formal output levels from OPEC despite strong objections from the price hawks, such as Algeria, Iran, Libya and Venezuela. Furthermore, the falling value of the dollar means that a target of $35 would be the equivalent in euros of $25 three years ago, so in one sense the target price has not changed. Moreover, U.S. Federal Reserve Chairman Alan Greenspan declared recently that the world economy can live with oil prices around the $35 mark. Another important political dimension for oil markets concerns the relationship between the U.S. and Venezuela. Just before the strike that affected PDVSA in December 2002, Venezuela supplied 13% of total U.S. oil imports, and it remains the country's fourth-largest supplier, currently accounting for 12%. Since the election of Venezuelan President Hugo Chavez, relations with the U.S. have become strained, mostly due to alleged U.S. support for the coup attempt in April 2002 and for the anti-Chavez opposition generally, and to recent accusations by Chavez that the U.S. has planned to assassinate him. Washington has been irritated by Chavez's foreign policy, especially his formation of closer ties with Cuba and China and his efforts--though more rhetorical than real--to export his "Bolivarian revolution" to other parts of Latin America. U.S. Secretary of State Condoleezza Rice recently described Chavez as a "negative force in the region," partially due to allegations that he had provided support for Colombian insurgents. Chavez, in turn, has been strongly critical of U.S. involvement in the Colombian anti-narcotics campaign. Chavez recently threatened to sell off PDVSA's U.S. downstream subsidiary, Citgo. PDVSA is currently the largest petrol supplier in the U.S. Concerns that relations might deteriorate further were fueled by Iranian President Mohammad Khatami's recent visit to Venezuela, which raised issues of "unholy alliances" within OPEC. Relations between the U.S. and Venezuela are worse than those between Washington and Riyadh. Furthermore, Venezuela has the potential to harm the U.S. seriously by withholding crude exports--albeit at a high cost to itself--although in practice this remains highly unlikely. Political uncertainties will continue putting upward pressure on oil prices. However, as the U.S.-Saudi relationship illustrates, many of the fears within the market are exaggerated. They suggest, in the medium- to long-term, an oil price of $40 to $45 per barrel. Oxford Analytica is an independent strategic consulting firm drawing on a network of more than 1,000 scholar experts at Oxford and other leading universities and research institutions around the world. For more information please visit www.oxan.com, and to find out how to subscribe to the firm's Daily Brief Service, click here. ------------------------ Yahoo! Groups Sponsor --------------------~--> Take a look at donorschoose.org, an excellent charitable web site for anyone who cares about public education! http://us.click.yahoo.com/_OLuKD/8WnJAA/cUmLAA/TySplB/TM --------------------------------------------------------------------~-> -------------------------- Want to discuss this topic? Head on over to our discussion list, [EMAIL PROTECTED] -------------------------- Brooks Isoldi, editor [EMAIL PROTECTED] http://www.intellnet.org Post message: osint@yahoogroups.com Subscribe: [EMAIL PROTECTED] Unsubscribe: [EMAIL PROTECTED] *** FAIR USE NOTICE. This message contains copyrighted material whose use has not been specifically authorized by the copyright owner. OSINT, as a part of The Intelligence Network, is making it available without profit to OSINT YahooGroups members who have expressed a prior interest in receiving the included information in their efforts to advance the understanding of intelligence and law enforcement organizations, their activities, methods, techniques, human rights, civil liberties, social justice and other intelligence related issues, for non-profit research and educational purposes only. We believe that this constitutes a 'fair use' of the copyrighted material as provided for in section 107 of the U.S. Copyright Law. If you wish to use this copyrighted material for purposes of your own that go beyond 'fair use,' you must obtain permission from the copyright owner. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/osint/ <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
