North African Turmoil Could Rocket Crude to $220
Wednesday, February 23, 2011 at 09:22PM If the turmoil paralyzing parts of the Middle East and North Africa brings oil production in Libya and Algeria to a standstill, it could cause crude oil to explode to $220 a barrel, derailing the global economic recovery.
According to a new report from Tokyo-based Nomura, a simultaneous production halt from embattled Libya and neighboring Algeria would reduce OPEC spare capacity to 2.1 million barrels a day and may cause crude to spike from about $97 a barrel today to $220 a barrel.
“The closest comparison is the 1990-1991 Gulf War,” the Nomura analysts, led by Michael Lo, wrote, saying crude prices leaped 70% in seven months when OPEC’s spare capacity was cut to just 1.8 million barrels a day during that conflict with oil-rich Iraq.
While the $220 figure may sound high, Nomura said it could be an underestimate as speculative oil traders who were not around during the Gulf War may exaggerate the surge during an oil production halt.
The turmoil in Algeria hasn't gotten nearly as much attention, but that government is also believed to be very vulnerable and recent protests have led the government there to lift its state of emergency.
The report comes as Wall Street has grown increasingly fearful the violence slamming Libya, Africa’s third-largest oil producer, will eat into the global economic recovery.
Even though the global economy has strengthened considerably in recent months, it's clear $220 oil prices would seriously hurt growth, putting a huge burden on cash-strapped consumers and businesses, especially transportation companies like shipping giant FedEx (FDX: 89.25, -4.01, -4.30%), airliner JetBlue (JBLU: 5.70, -0.08, -1.38%) and cruise operator Carnival (CCL: 42.06, -0.03, -0.07%).
Reader Comments