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Page added on June 13, 2014
Oil prices aren’t coming down any time soon, and Iraq is just the latest reason
The upheaval in Iraq threatens to exacerbate a three-year-old trend in which unusual geopolitical disruptions have become the new normal. A key impact—high oil prices when analysts say bulging new supplies should be sending them far lower.
That is because much of the geopolitical turmoil has been in or involved oil-producing countries. “We are witnessing the failure of the petro-state,” Citigroup’s head of commodity research, Edward Morse, told Quartz.
Up until 2011, an average of 500,000 barrels of oil a day was off the market at any one time for maintenance and other reasons, a volume that triggered no perceptible price volatility. Temporary aberrations like Hurricane Katrina took 1.5 million barrels off the market in 2005, and the 2003 attack on Iraq removed 2.3 million barrels a day.
But starting in 2011, the disruptions often began to exceed 2 million barrels a day. Among the culprits were the Arab Spring and follow-on uprisings, the chaos in Nigeria, Iran sanctions and of course Russia president Vladimir Putin’s crypto-invasion of Ukraine.
Then last July, Libyan militants stormed oil export facilities and shut them down. As of now, the country pumps just one-eighth of the 1.6 million barrels of oil a day it produced before Muammar Qadhafi’s ouster in 2011. All in all, about 3.5 million barrels of oil a day have been off the market around the world since last fall. Those barrels have offset a 1.8 million-barrel-a-day surge of supply from the US.
As a consequence, oil prices have continued to soar. And this increase has been exacerbated recently by China’s record-setting hoarding of oil.
If it wasn’t for the disruptions, many analysts say prices would decline well below $100 a barrel.
Morse said Citigroup bakes 3 million barrels a day of disrupted oil into its forecasts as a matter of course. It is hard “to predict the challenges making for state failure,” he said, but he expects the new state of play to last a generation.
Oil research firm IHS’s analyst Jamie Webster believes the level of oil disruption will gradually tail off over the coming decade or so, settling at a still-elevated norm of 1 million to 1.5 million barrels a day off the market.
The direction of events in Iraq suggests reinforcement of this trend. Militants from an al Qaeda offshoot known by its acronym ISIL appear to be marching on Baghdad (paywall) while also working their way into a possible battle with autonomous Kurdistan. (Kurdish peshmerga forces today took control of Kirkuk, the Kurdish capital, as the Iraqi army fled, setting the stage for a possible clash with ISIL.) Baghdad has been requesting US bombing raids to push them back and the Eurasia Group says that the Shiite-dominated south—home to the majority of Iraq’s oilfields—is likely to put up a far fiercer fight than Mosul. Though that means ISIL may not actually capture the fields, the danger of disruption (paywall) remains.
Correction/update: An earlier version of this article referred to the al Qaeda offshoot in Iraq as ISIS, which was then changed to ISIL, for the Islamic State in Iraq and the Levant. In fact, the group is referred to by both names. A reference was also added to the Kurdish takeover of Kirkuk.
13 Comments on "Oil prices aren’t coming down any time soon, and Iraq is just the latest reason"
paulo1 on Fri, 13th Jun 2014 8:30 am
re: “If it wasn’t for the disruptions, many analysts say prices would decline well below $100 a barrel.”
Hey folks, these disruptions are called “life”. Get used to it. Why didn’t they just say, “In a perfect world, oil would be well below $100/barrel.
If there was an unlimited geological supply of ff, none of these issues would matter. However, there is not and we are at limits so guess what? Everything that happens is critical to supply and the economy. Everything.
Paulo
shortonoil on Fri, 13th Jun 2014 9:25 am
“If it wasn’t for the disruptions, many analysts say prices would decline well below $100 a barrel.”
These oil experts may understand the markets, but they don’t understand energy. Long term the price of oil is controlled by its cost of production. Short term pricing fluctuates significantly because of geopolitical events, but base line pricing results from per unit production costs, and production costs are a reflection of the energy input needed to produce it. Much of the inventory now in the US is low grade condensate that is used as a feed stock. It only has a market because high grade oil is there to power the economy that produces the demand for the feedstock material. High grade oil is now in a state of advanced depletion, and the cost to produce it is skyrocketing. $100+ oil is here to stay because producers can not operate for long below production costs, regardless of the state of the economy.
http://www.thehillsgroup.org/
Perk Earl on Fri, 13th Jun 2014 1:34 pm
Ok, so things are getting crazy in Iraq, but how about we really get crazy on this Friday the 13th and get ready to cut off Russian NG to the Ukraine which will also disrupt supplies to the EU!!!
What else can go wrong? And who may I ask is going to supply NG to the Ukraine and EU? The US? Might as well die with our boots on – LOL!
http://in.reuters.com/article/2014/06/13/ukraine-crisis-naftogaz-idINL5N0OU27V20140613
* Russia and Ukraine unable to agree on gas price
* Russia has set deadline to cut off gas supplies
KIEV/MOSCOW, June 13 (Reuters) – Ukraine began preparing on Friday for Russia to cut off its gas after talks on long-running price dispute broke down, raising the prospect of supplies to the European Union also being disrupted from Monday.
Turning off the taps would aggravate the worst political crisis between Russia and Ukraine since the Soviet Union broke up in 1991 and set back fledgling peace moves in east Ukraine, where government forces are fighting pro-Russian separatists.
Russia initially demanded Ukraine pay $485 per 1,000 cubic metres of natural gas but then offered to remove the export duty, a move that would reduce the price to $385 – around the average amount paid by Russia’s European clients. Ukraine had held out for $268.5 until Friday, when it said it was ready to pay $326 for an interim period of 18 months while a long-term price was worked out.
“Ukraine will be ready under such a compromise to pay its unpaid bills from the past,” Kobolev told reporters in Kiev.
But President Vladimir Putin’s spokesman described the new offer – based on a proposal by the European energy commissioner who is mediating talks – as “inadequate”.
Perk Earl on Fri, 13th Jun 2014 4:20 pm
http://www.telegraph.co.uk/news/worldnews/middleeast/iraq/10892299/Iraq-crisis-ISIS-militants-push-towards-Baghdad-as-it-happened.html
Iraq crisis: ISIS militants push towards Baghdad – live
Group claims mass killings of Iraqi troops, as militants battle security forces 50 miles from Baghdad – follow latest developments – follow latest developments
Kenz300 on Fri, 13th Jun 2014 7:41 pm
The price of oil will only continue to rise………..
It is time to become less reliant on imported oil and more self sufficient in energy.
Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste are the future.
Biofuels can now be made from waste or trash. Biofuels, energy and recycled raw materials for new products are currently going to waste. It is time to stop adding to landfills and use the resources (trash) to produce energy locally. The old centralized model of energy production needs to give way to a new decentralized model. Even the utility companies are beginning to recognize that decentralized power production is the future.
Makati1 on Fri, 13th Jun 2014 9:36 pm
Distraction/disruptions:
Libya
Iraq
Afghanistan
Ukraine
Egypt
Venezuela
Thailand
Nigeria
Iran
etc.
ALL are places where the US is stirring the pot trying to start WW3. With troops in 150+ countries, sooner or later they will succeed. And it will end in a nuclear exchange when one side is losing. Or, it may start with one. We shall see.
clueless on Fri, 13th Jun 2014 11:20 pm
America will crawl into a nation’s political and economic systems of their choice, depending on which wealth (in most cases OIL) is the easiest to exploit and extract, either via invasion, or aid camouflaging as help… This industry has been the backbone of this stupid nation’s economy for the longest time, and it’s government has no plan on stopping anytime soon to keep up with it’s illusion of superpower status….which they claim still exists. lol
Davy, Hermann, MO on Sat, 14th Jun 2014 6:08 am
Awe isn’t that cute The clue and Mak, riding together on their little ponies. I can’t tell which is the sidekick and which is the Lone Ranger wanna-be. You guys are a joke with your America bashing and fantasy with war and destruction. You chumps are simplistic in your analysis because all you can do is bash America. Please I am not stupid and I can easily see there is more to the complex global geopolitical system then a narrow American angle. Please in the future offer something interesting and enlightening. Be like Arthur on this board that will bash America politically but with interesting posts not with your fast food approaches. IMA Arthur is balanced and will acknowledge American strengths there by showing intelligence and objectivity. You sidekicks need to go back to school you are embarrassing.
Pops on Sat, 14th Jun 2014 7:07 am
The fact that global supply has zero spare capacity and no ability to expand production after 3 years of unrest, is not directly addressed.
The larger problem, that production of actual oil hasn’t increased since 2005 is somehow overlooked.
rockman on Sat, 14th Jun 2014 9:12 am
Davey – I suspect those boys might not be listening to their own words. I’m not joining their US bashing but I also appreciate how resistant the public is to giving up their lifestyle. The Clue and Mak might not like past efforts of what the US has done to keep its economy stable. But as much as it displeases me to say so: they ain’t seen nothing yet IMHO. Just look back at what the country has spent in $’s and our own blood trying to maintain stability. I’m not that concerned so much about the future of the US as for those smaller and less competitive economies. Additionally a lot of concern about the stability of many oil exporting countries. I have a suspicion that Iraq’s return to significant oil exporter status was at least a portion of the motivation behind the current insurgent activity. IOW who wants to draw a broken and poor region into a new Islamic state. OTOH a region with many $BILLIONS in future revenue has to look ver appealing.
rockman on Sat, 14th Jun 2014 9:13 am
Davey – I suspect those boys might not be listening to their own words. I’m not joining their US bashing but I also appreciate how resistant the public is to giving up their lifestyle. The Clue and Mak might not like past efforts of what the US has done to keep its economy stable. But as much as it displeases me to say so: they ain’t seen nothing yet IMHO. Just look back at what the country has spent in $’s and our own blood trying to maintain stability. I’m not that concerned so much about the future of the US as for those smaller and less competitive economies. Additionally a lot of concern about the stability of many oil exporting countries. I have a suspicion that Iraq’s return to significant oil exporter status was at least a portion of the motivation behind the current insurgent activity. IOW who wants to draw a broken and poor region into a new Islamic state. OTOH a region with many $BILLIONS in future revenue has to look very appealing.
Makati1 on Sat, 14th Jun 2014 8:57 pm
Rock, I don’t want the US to continue doing it’s plundering and murder to keep a lifestyle I gave up years ago. It deserves to go down the toilet for it’s actions and I blame the so called ‘citizens’ for letting it happen. They deserve what is coming, and that is a world war that finally reaches US shores.
Yes, I have family there, and worry about them, but they are part of the problem, not the answer. only one out of all of them see what is coming and is preparing. The others just want BAU and won’t talk about it. If my position sounds heartless, maybe they/you should come to the 3rd world and see what the ‘exceptional’ country has done in the name of ‘democracy’. Murder is the least of it.
Davy, Hermann, MO on Sat, 14th Jun 2014 10:11 pm
Mak, I am shedding alligator tears for you and your shallow story. Sorry, you need meds and a doctor that is the plain and simple.