Thursday was a bit of a wild day for the London and New York crude oil markets. The New York Mercantile Exchange's April light, sweet crude future contract spilled over $55 per barrel, reaching as high as $55.20 before settling down at $53.57 - the highest NY crude futures have been in four months.So stocks are already low resulting in a "modest" increase in the price of crude. So, what would happen if there was a disruption?
UK Brent - the standard for much of the world - ended trading at $51.95, it's highest close in 17 years.
The story from traders is that the rally was driven by heavy buying from funds and institutional investors, who for whatever reason(s) stampeded the oil and products markets. In fact, pension funds have bought big into global commodities markets, being one of the few places right now with a guarantee of significant returns.
There also seems to be some panic brewing over US gasoline stocks, with many traders doubting the veracity of US government data released this week showing an increase of gasoline stocks along the Gulf Coast. At the same time, the American Petroleum Institute reported a decrease in gasoline stocks, and the Energy Information Agency - which publishes storage data for crude, refined products and natural gas every week - said it would look into the matter.
But there was also the statement from OPEC's chief economist, Adnan Shihab-Eldin, who told Kuwaiti newspaper al-Qabas that while it is difficult to forecast just how high the price of New York crude oil futures could go, he could not "completely exclude" the possibility that crude futures could hit $80 in the event of "a major supply disruption."Part of the current run up may well be a result of the Bush administration's saber rattling in relation to Iran. I think that the possibility of a disruption in the Saudi supply is underestimated. Bush buddies, the house of Saud is extremely unpopular and a target of al-Queda. It amazes me that there has not been more sabotage in the Saudi fields already.
Mr Featherstone has some thoughts on the Bush administration's reaction and how it's the red staters who voted for him will suffer:
I don't think the Bush administration would do much if gasoline prices hit $5 per gallon. It means good money for friends and relations in the industry. It also probably means more government power - in the form of rationing and "aid" to those worst effected - as well.
I hope the red state fascists, those for whom patriotism and love of country is mostly about waving flags and foam-rubber fingers and kicking foreigner ass, understand this when they cannot fill the tanks of their pickup trucks and SUVs, when they no longer have jobs and cannot afford groceries because diesel fuel is simply too expensive. But all there will be left is government jobs, assuming governments can collect any taxes or borrow some more from the Chinese and South Koreans.
But I doubt it. They will likely go on supporting the troops and cheering "the commander in chief." Sure, they'll blame the Ay-rabs, the Eye-ranians and whatever derogatory term we'll give to the Venezuelans, and holler and hoot as the bombs fall.
The blind. Being lead by the blind. And we may all fall into the ditch together.
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