Libya’s civil war: can world survive $200+ oil?

“We could see $220 a barrel should both Libya and Algeria halt oil production. We could be underestimating this as speculative activities were largely not present in 1990-1991,” said Michael Lo, the bank’s oil strategist.

Commodity analysts at Nomura Holdings Inc. said. Brent crude prices could double to $220 per barrel in the coming weeks if Libya descends into an all-out civil war and further shuts down oil production in the country. Moreover, if the unrest spreads to neighboring Algeria, global spare capacity would be sliced to the narrowest margins not seen since just before Saddam Hussein invaded Kuwait and ignited the first Gulf War.

Nomura indicated that a shut-down in Libya and Algeria would reduce global supply by 2.9-million barrels per day and slash OPEC spare capacity to 2.1-million barrels per day — similar to figures at the dawn of the Gulf War and worse than during the oil price surge of 2008 when prices reached an all-time high of $147 per barrel. Source: IBTIMES (3)

Looking back at the past 50 years, one can be certain that any oil price shock on a prolong period almost always cause a recession to follow.

In 1997 we were subjected to what has been labeled the Asian flu. A financial crisis hit the Asian markets and consequently their economies slowed down considerably. Sound familiar? The price of oil at the time dropped from $30 a barrel to $9. The interesting thing about that is the overall decrease in demand for oil was less than 1%. The problem is that there is no capacity to store the oil that is being pumped. Saudi Arabia alone pumps about 9 million barrels a day. That oil is sent to the refineries by pipeline and supertanker. The oil is processed into fuel and burned. The storage facilities would be overwhelmed with less than a day’s production. Actually I’d go so far as to guess that the storage facilities would probably be overwhelmed with a few hours of production.

Why did we bring this up? Libya represents 2% of global production. If oil prices were cut by 2/3 in 1997 and that represented less than 1% change in demand, what do you think a 2% drop in production will do to prices?

All price increases can be traced to the Commodity Market. The players in this market are only making a contract, setting a delivery date at a set price. I can only guess at this, that only 80 to 85 percent of the players in this market can not use the goods or products that they have made a contract to purchase. Their only motive for being in this market is profit.They make their profit by reselling the contract at a higher price.

A closer look into the Commodity Market Exchange and the Regulatory Boards that govern their operations might help. Stopping Commodity Trades of goods and products when the supply is threatened by incidents that we are now witnessing.

We are still very much dependent on oil and its oil by-products. Almost all transportation is directly or indirectly affected by any upswing in oil price. This will propagate itself right thru in increase transportation cost in everything from raw materials from the producers to finished products at the end-user. My seven years stint in an international oil company show how dramatic the impact of oil price on any local economy. It also shows me how limited supply is these days – no more cheap oil, no major recoveries and the ever increasing cost of going to production.

Unless we scale back our dependency what you see in an elliptical trajectory of oil price to continue . With interest rate so low, there is always the propensity to spend rather than save. Additionally the trend to small and high mpg vehicles as seen 2 years ago has revert back to larger cars/crossovers (part of reason for auto industry recovery but bad for long term economy).

How about the United Kingdom?

Well, looking at the UK, people made their bed and now it is time to lie in it. They spent nigh on a decade drunk, overextending on debt and mortgages: it was one hell of a party and now the hangover.

It is hard to feel sympathy for people who didn’t think about the future and just got themselves into so much debt. Maybe – judging on how fat many are now – a period of hunger would do them good. And also learning some personal self-discipline wouldn’t go amiss. This idea you could just be mentally, physically and financially incontinent and the government and society would just pick up the tab, that has to stop. Time to man-up and take responsibility for your life.

Situation in Canada very worrying

It is not just double dip but now the Fed/Provincial governments need to reduce taxes by 10% across the board – else there will be mass mortgage default and hunger. Their love of taxing fuel will cause people to come out and protest.

Our advice to the Canadian government is seriously reduce taxes or be ready for civil strife and get ready to be tossed out of the government – Egyptian/Libyan style.

Time to slim down the Government too and be ready to answer to small/medium/large black holes of expenses which could have been avoided. You also need to get your purchasing managers push down costs at every angle, Brazilian style.

The Achilles heel of this mess is the banks and silver. The suppression of silver is much greater that gold. If everyone in North America buys an ounce of gold and a couple ounces of silver we could crash most of the banks that’s causing hyper-inflation. That’s our way of legally fighting against vampire banks.


(1) IBTimes

2 thoughts on “Libya’s civil war: can world survive $200+ oil?”

  1. The world is in a perilous state at the moment. The rate of change across multiple geographies is going to impact the global markets. The massive population boom in the second and third world since 1950 hasn’t helped. Moderation is not a heavily used western word but people will start to use it more as resources become more and more expensive. At least it may push more research toward Nuclear Fusion and harnessing the suns energy which is still very underutilized.

    There will soon be riots in the UK about the cost of Fuel – the government has helped by taxing it 60%!

  2. Saudi Arabia will be next; several small countries incl., then watch prices go up. Lindsey williams on Alex Jones and the Intel hub radio (other radio shows too) said we would have to drill here once hit hits a certain price per barrel or the economy will be hit.

Leave a Reply

Your email address will not be published. Required fields are marked *