The killing of Benazir Bhutto and a drop in oil supplies in the US moved oil above $96 overnight. Trouble between the Kurds and Turks contributed as well. But, none of these things has any direct bearing on a significant interruption in the oil supply.
Several pieces of analysis from the US government’s Energy Information Administration and the International Energy Agency see crude demand rising virtually every year for the next decade. Oil producing nations like Saudi Arabia and Mexico are using more crude to build their own economies, leaving less to export.
That leaves the issue of what would happen if there were a real disruption of supply against spiking demand from the US, China, and other oil hungry economies.
A drop in supply of three to four million barrels a day would affect 5% of oil availability. An interruption of the flow of oil from Nigeria is about half of that. A cut of oil from Iraq would be a little less.
In the freak economics of oil pricing, having 5% of supply off-line would increase prices by much more than 5%. News which has little effect on oil supply pushes can push crude prices up by $3 or $4.
Would a real catastrophe move oil up 50%? The man who knows that does not exists. But, the psychology of oil prices is perverse.
Douglas A. McIntyre
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