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July 14, 2006
Conflict Up. Oil Prices Up.
By: Rowan Wolf
The conflict between Israel, and Palestine and Lebanon continues to escalate, but thus far has drawn in Syria and Iran. That is with no thanks to President Bush who issued a statement yesterday saying that Iran and Syria were intimately involved through their purported support for Hezbollah (and other militant groups). However be not deceived that the soaring oil price increase is only linked to Israel's conflicts (as with Oil hits fresh record on global tensions). The conflict that is really driving up the price is Nigeria.
Certainly events in the Middle East are impacting supply demand imbalance that has been characteristic of this last year. However, the Middle East's largely heavy crude supply is not what is setting oil prices. That falls to conflicts and shortages of sweet (light) crude, and not the much heavier crude that is coming out of Saudi Arabia and elsewhere. This magnifies the impact of escalating conflict in Nigeria as in yesterday's report of kidnappings and explosions in Nigeria. Nigeria is one of the primary producers of sweet crude in the world.
According to Wikipedia, the major sweet oil producing nations are: Romania, Sudan, United Kingdom (Brent Crude), United States (West Texas Intermediate), Oman, Yemen, Nigeria, and Malaysia. It is reported that most, if not all, of these fields are past the sweet crude peak, but further disruption exacerbates the situation. It should be noted that notable conflicts continue in at least three of these areas: Sudan (Darfur), Nigeria, and Malaysia (Aceh most notably). Of the three, Nigeria is the largest exporter.
While the figures seem somewhat speculative, it is interesting to look at the EIA's (Energy Information Administration) Oil and Natural Gas Hotspots Factsheet. It summarizes conflicts in oil producing regions. Then compare that to the EIA report "EIA-856 Monthly Foreign Crude Oil Acquisition Report" (pdf) starting at page 8. The higher the "gravity," and the lower the "sulfur" content, the more desirable the oil.
How important is sweet crude in the pricing? Well it essentially is the most commonly reported oil price, and the one that directly effects gasoline prices.
"The world oil price in IEO2006 is defined as the annual average price of imported low-sulfur, light crude oil to U.S. refiners (see discussion on "World Oil Prices in IEO2006"). In the low world oil price, reference, and high world oil price cases, average world oil prices in 2030 are $34, $57, and $96 per barrel, respectively (Figure 32). (All prices are in real 2004 dollars--i.e., inflation-adjusted dollars--unless otherwise noted.) " (International Energy Outlook 2006 - Chapter 3 EIA)
Obviously their pricing is highly optimistic.
Posted by Rowan at July 14, 2006 9:32 AM Category: Peak Oil --- Social Implications