Wednesday, March 14, 2012

Expensive gasoline changes everything

With 13,000 AIPAC attendees screaming for blood at their conference last week and the mental giants for the Republican Presidential nomination jockeying to outdo each other with war cries, it would be easy to assume that another costly and counterproductive war was already a done deal.  After all, there has been a predisposition towards war during my lifetime and USA has supported every Israeli outrage against her neighbors since 1956 when Eisenhower refused to support her attacks on Egypt over Suez.

While it is never a good idea to bet against a war being ginned up by the Republicans and the Zionist lobby, there are tiny rays of hope that this time it might be different.  Mostly that little hope is based on the idea that this time, too many big economic interest could get hurt.  What Weisenthal calls a "worst-case" below is probably a best-case projection for a real shooting war with Iran and there are probably cooler heads that understand this.

What The Worst-Case Scenario In Iran Would Mean For World Oil Prices
Joe Weisenthal | Mar. 6, 2012

UBS commodities strategist Julius Walker has a note out on the prospects of an oil shock in Iran, what such a shock could look like, and the potential impact on commodity prices.

Walker sees four main possibilities, ranging from somewhat benign to extremely costly.

We summarize them quickly here.
  • Scenario #1: EU sanctions get put into place starting July 1, resulting in 0.6 million of barrels per day coming off the market. In this case, Brent Crude would rise to about $130/barrel, though possibly less, since the embargo might make exemptions for some distressed buyers of Iranian oil, like Italy and Greece.
  • Scenario #2: Full EU sanctions are put in place, plus there's another 10% cut from other customers. In this case, we'd be talking about oil going to $138/barrel.
  • Scenario #3: Iranian crude exports are halted entirely, perhaps as a result of an Israeli air strike. Then we're talking about a loss of 2.5 million barrels per day of supply, and Brent Crude prices up around $205.
  • Scenario #4: The complete shutdown of Iranian oil. This would require some kind of military action and wide internal upheaval. In this case, the world would lose 4 million barrels per day, and we'd see crude as high as $270 per barrel. more

The 10 Countries That Would Get Screwed In An Iranian Oil Shutdown
Joe Weisenthal | Mar. 6, 2012

UBS' Julius Walker has a big, extensive note out on the impact of Iran tensions on the oil market.

We just walked through some of his scenarios for Iran, and what they could mean for the price of oil. In his view, Brent could get as high as $270/barrel.

Anyway, he also lists the top 10 importers of Iranian crude.

Here they are.
China: ~550 thousand barrels/day
India: ~320 thousand barrels/day
Japan: ~310 thousand barrels/day
South Korea: ~220 thousand barrels/day
Turkey: ~190 thousand barrels/day
Italy: ~180 thousand barrels/day
Spain: ~160 thousand barrels/day
Greece: ~110 thousand barrels/day
South Africa: ~60 thousand barrels/day
France: ~50 thousand barrels/day

Of course, in a price shock, the whole world would be affected in some way or another, but these countries might actually see some supply issues. more
Already, high prices are taking a big bite out gasoline consumption in USA.  And IF those reductions in fuel usage is a function of structural changes like a more efficient fleet of vehicles, then these changes are more or less "permanent."  Again, we can hope.
Watch This Chart To Know If Gasoline Demand Falls Off The Cliff
Joe Weisenthal | Mar. 11, 2012

As gas prices take on more and more importance, it's useful to know which data and data sources are worth checking out.

Here's an easy one.

The Energy Information Agency has a weekly report called This Week In Petroleum, which combines oil/gas data with some very useful commentary on the latest developments.

For example, this week they hone in on the matter of collapsing non-OPEC supply, and the impact that is having on oil:

Libyan supply is returning to the market, but supply disruptions in other parts of the Middle East and North Africa (MENA) were part of the price story last month -- this time in South Sudan, Yemen, and Syria. In the former Sudan, an unresolved dispute between Sudan and the newly independent South Sudan led the latter to shut in all of its production at the end of January. The U.S. Energy Information Administration (EIA) now projects that total production from Sudan and South Sudan will fall to an average 200 thousand barrels per day (bbl/d) in 2012 from about 430 thousand bbl/d last year, before recovering to 370 thousand bbl/d in 2013. In Yemen and Syria, civil conflict is also taking a toll on oil output. Yemen's production, already impaired by an ongoing outage to the Marib pipeline, was further curtailed in February by a strike at the country's largest oil field. EIA projects that Yemen's production will average 180 thousand bbl/d in 2012, and 200 thousand bbl/d in 2013, down from a pre-crisis level of around 260 thousand bbl/d. In Syria, damage to a major pipeline that feeds one of the country's two refineries has exacerbated production problems. EIA now expects Syria to produce 260 thousand bbl/d in 2012 and recover to 360 thousand bbl/d in 2013, versus 400 thousand bbl/d pre-crisis.

Anyway, for your immediate econ needs, scroll to the bottom of the gasoline sub-section, where you'll find this chart.
As you can see from the red line, daily gasoline demand this year is well off last year's levels despite many more people having jobs than at this time last year.

And that's a 4-week moving average. On a week-per-week it would actually look more stark, as demand is down 10% from a year ago this time. more

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