OIL

“Nothing To Spare” – Oil Outlook 2012

Ronald-Peter Stoeferle

This report posits that risks for the oil price are heavily skewed to the upside. At the moment, the market is well supplied, but the escalation of troubles in the Persian Gulf could easily push oil prices to new all-time highs. New all-time highs will mean demand destruction. The average oil price will likely reach $123 per barrel by March 2013.

A crisis in Iran seems close to igniting. The most recent maneuvers, threats, sanctions and embargoes have worsened the situation. Even though Iran may only be able to maintain a blockade of the Straits of Hormuz for a limited time, the consequences would be dramatic. The oil price would definitely hit new highs, and could reach levels of up to $200. 

Its still-low reserve capacity makes the oil price vulnerable to geopolitical tensions. With the exception of Saudi Arabia, no country holds any significant reserve capacities. But since Saudi Arabia has never exceeded 10 million barrels per day on a sustainable basis, there are doubts as to whether it can actually produce more than that. It would take a supply side crunch to find out whether the alleged reserve capacity actually exists to the extent claimed. At any rate, the decision of IEA to tap strategic reserves during the Libya crisis is a clear indicator of the strained supply situation. 

Getting alternative forms of energy up and running quickly seems unlikely, given the current political environment and investment volume. High oil prices do, however, encourage shifts in efficiency and technology.

Other topics discussed: High liquidity, low interest rates and QE should create a positive environment for oil; Does the skyscraper index signal a weaker oil price; Oil price development from the perspective of the Austrian School of Economics; Petrodollar exiting through the back door; Break-even oil price suggests rising floor; Sharply rising oil consumption in the exporting countries could trigger shortages in the long run; US natural gas has a attractive risk/reward profile; Clean fracking will make shale gas production more efficient.

source:bmgbullion