Hurry Up and Kuwait

I have been watching the price of oil creep back up toward $70 per barrel from its anticlimactic drop after Hurricane Katrina disrupted oil operations in the Gulf of Mexico. Prices fell as the US and Europe released oil from their strategic reserves to help make up the shortfall.

Today, those reserves are depleted and prices are creeping back up despite our unseasonably warm winter, which has reduced demand for heating oil and allowed cars to run much more efficiently than they would during the bitter cold that usually accompanies this time of year.

With the ugly war of words between Iran and the United States over Iran’s nuclear energy program (which, by the way, is in full compliance with the Non-Proliferation Treaty), investors worry a diplomatic or military escalation will provoke Iran to halt its oil production.

Unlike, say, the first Gulf War, when Saudi Arabia was able to step up production to replace Iraq’s lost output, the world’s oil producers are already running full-bore today. There is no spare capacity left in the oil production industry.

Raise the Hammer