Two good recent articles on the implications for oil prices and production of the situation in Libya. First, Tom Whipple’s always cogent overall analysis:
While the 1.6 million barrels a day (b/d) that the Libyans pumped in January may not appear significant in a world that produces some 88 million barrels each day, we should remember that those barrels are being consumed somewhere in a world where they are consumed just as fast as they are produced. If there is anything that we have learned in the last 40 years, it is that relatively small disruptions in oil production can lead to relatively large increases in oil prices.
OPEC, the International Energy Agency, and the Saudi oil minister are already rushing to reassure us that we have nothing to fear. The OECD has reserve stockpiles totaling 1.6 billion barrels of oil and OPEC is forever reminding us about the six million b/d of spare oil production capacity that they claim can be turned on as soon as it becomes necessary. This of course would be nice if the upheaval in Libya was going to be the only problem, but it isn’t. There are at least half a dozen major Middle East oil exporters with large numbers of digitally-connected underemployed youths and are run by heredity or less-than-democratic corrupt governments. In recent days we have seen flavors of the “Tunisian contagion” erupt in Algeria, Kuwait, Iran, and Iraq which are indeed very significant oil exporters. The upheaval in Bahrain, not a major exporter, has even had a, so far minor, reflection in the Shiite portions of Saudi Arabia with its 8 and maybe 10 or 12 million b/d of oil production. This week the King of Saudi Arabia announced $35 billion worth of government aid to the poorest of his subjects suggesting that someone in Riyadh is getting nervous.
The conditions that created the current upheavals can only worsen. Rising oil prices are bound to stifle tourism and foreign investment in the Middle East and a looming global food shortage seems likely to make life even tougher for the growing ranks of un- or underemployed poor. Governments that have massive oil revenues can afford to buy, or try to buy, the acquiescence of their peoples, but adequate food supplies could turn out to be a different matter. As we saw with Russia last summer, massive crop failures can easily shut down food exports as governments become more concerned about domestic food riots than the wellbeing of other countries. The bottom line is that it seems likely we shall be seeing disruptions, perhaps serious ones, in other oil producing states in the not too distant future.
Next, Stuart Staniford sorts through the confusion, offering, as always, clarity in a blurry picture, and a useful summary of what’s going on.
With Chinese demand higher than expected, and other Middle Eastern nations shifting as well, there’s plenty of reason to believe that the world oil picture might be very unstable indeed. It is worth noting that the 70s oil shocks came about after about a 5% reduction in imports – oil shocks credited with causing nearly a decade of economic crisis.
No one knows what the future will bring – but what this should point out is that in the 13 years that peak oil analysts have been calling on governments to prepare for oil supply crises – crises that are both a logical outcome of political situations and a logical outcome of a world where demand and supply are running very close, no one has paid enough attention. We have to ask ourselves – if we had listened to Colin Campbell and the rest of those raising the alarm in 1998, where would we be now? And where will be in 10 years if we don’t act now to respond?