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Nomura Predicts $220 Oil If Just Libya, Algeria Cut Output

Tyler Durden's picture




 

Waiting for a Saudi revolution before buying those $200 oil calls? It may be time to reevaluate: according to Nomura a halt in just Libyan and Algerian oil production (far more likely than the crisis spilling over to Saudi) would send oil to over $220/bbl. Specifically "the closest comparison to the current MENA unrest is the 1990-91 Gulf War. If Libya and Algeria were to halt oil production together, prices could peak above US$220/bbl and OPEC spare capacity will be reduced to 2.1mmbbl/d, similar to levels seen during the Gulf war and when prices hit US$147/bbl in 2008." Wouldn't a doubling in price lead to a major demand plunge as well? Yes it would "This could also result in a temporary demand destruction of some 2.0mmbbl/d globally." Also, since the Fed's free money was not flooding global market last time, $220 is just a lowball estimate: "We could be underestimating this as speculative activities were largely not present in 1990-91."

More observations from Nomura's Michael Lo:

  • In order to estimate the impact the current MENA crisis could have on oil supply and prices, we analysed past crises that rocked the region. There have been a few events that drove oil prices higher (from 30% to 130% per event), most of which were during the period in which OPEC controlled oil prices. However, we believe the closest comparison is the 1990-91 Gulf War as this is the only event outside of that period. During the seven months of Gulf War, prices jumped 130% as OPEC spare capacity was reduced to 1.8mmbbl/d while demand came off briefly by 1.7%. Similarly, today, if Libya and Algeria were to halt operations, OPEC spare capacity will also likely be drawn down to 2.1mmbbl/d, in our view, which could fuel higher oil prices.
  • We have identified three distinct stages of the Gulf war which led to changes in oil prices and we believe we are only at the initial stage of the three stage process for the current MENA unrest. During the initial stage of the Gulf war, prices moved up by 21%. This is comparable to what we have seen recently when oil price went up by 13% since the beginning of the MENA unrest. As we see further evidence of real supply disruption, we will be moving into Stage 2 of the event – during this stage of the Gulf war, prices moved to its peak (up 130%) within a period of two months. On the assumption that prices will move up by the same amount, we could see US$220/bbl should both Libya and Algeria halt their oil production. We could be underestimating this as speculative activities were largely not present in 1990-91.
  • Open interest in WTI futures contracts has risen 2.4% since the beginning of the MENA crisis in January this year. On the other hand, open interest in Brent future contracts has fallen 7.6% during the same period. This was primarily on back of the large WTI-Brent differential during the period, as WTI crude prices are being suppressed by Cushing storage and infrastructure issues while Brent crude price was lifted by supply outages in North Sea fields.

And this is how excess capacity looks like per Nomura. If Wikileaks is right, and Saudi has been massively overestimating its reserves, $220 will be just the beginning.

Full report:

 

 

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Wed, 02/23/2011 - 10:34 | 988190 BeerGoggles
BeerGoggles's picture

The guy is full of shit. Libya only produce 3% of world's oil. That results in a 100+% increase in oil price does it?

Wed, 02/23/2011 - 10:38 | 988200 curbyourrisk
curbyourrisk's picture

This from a bank that has seen the true effects of Zero Interest Rates.  This from a bank that was zombified a generation ago.  This from a bank who dwells inside a country with a debt/gdp ratio that reaches the fucking sky.

 

SHUT UP you fuckin jackwagon.

Wed, 02/23/2011 - 10:41 | 988209 papaswamp
papaswamp's picture

Look at it in terms of light sweet crude...not total oil.

Wed, 02/23/2011 - 10:46 | 988236 arkady
arkady's picture

Good point.

Wed, 02/23/2011 - 10:51 | 988256 jus_lite_reading
jus_lite_reading's picture

You're missing the point. It's hidden in plain sight...

Wed, 02/23/2011 - 11:03 | 988314 financeguru500
financeguru500's picture

In an unrelated note, Shanghai Scooter company predicts record scooter sales for the remaining part of 2011.

Wed, 02/23/2011 - 10:52 | 988262 samsara
samsara's picture

Yes, the mechanics works like that.  You take out that much and the effects are NOT linear.    You will see it is a MULTILPLE of it.

Wed, 02/23/2011 - 11:31 | 988454 markmotive
markmotive's picture

Oil is priced on marginal supply and demand. I think nat gas in California provides a good example of what can happen to prices when a small amount of supply is cut off.

So yes, a small decline in supply can cause big price increases.

Looks like the 'real' inflation rate of 10% may be something we talk fondly of in the future:

http://www.planbeconomics.com/2011/02/22/real-inflation-near-10/

Wed, 02/23/2011 - 11:41 | 988500 Zero Debt
Zero Debt's picture

Nonlinearity

Wed, 02/23/2011 - 10:35 | 988195 papaswamp
papaswamp's picture

Saudis would have to ramp up production...something they don't want to do since their reserves are far lower than previously stated. This could get real interesting real quick. 

Wed, 02/23/2011 - 10:40 | 988207 samsara
samsara's picture

"something they don't want to do "

shouldn't that be

Something they CAN'T do

Wed, 02/23/2011 - 10:45 | 988235 papaswamp
papaswamp's picture

They could be at that point...if they are the King had better rethink his return to the kingdom.

Wed, 02/23/2011 - 10:36 | 988197 Rusty Shorts
Rusty Shorts's picture

No worries, Spindletop is re-filling with Abiotic oil as I type. Yes, that's right, Gas will once again be .29 cents a gallon.

Wed, 02/23/2011 - 10:39 | 988202 samsara
samsara's picture

+1000,  

I almost sneezed up my coffee. 

And,  don't forget that perennial favorite.

"The Bakken will save us,  Billions of barrels I tell ya"

Wed, 02/23/2011 - 10:45 | 988230 unwashedmass
unwashedmass's picture

i'm not excited. Ben will rev up the helicopters.....and this time, he might, now don't get your hopes up,

he might give $250 to each peasant "to help with the gas price"....

whoa.......

Wed, 02/23/2011 - 10:54 | 988270 jus_lite_reading
jus_lite_reading's picture

Dr. Deficit aka Kamikazi Ben is prepping his own escape heli right now... "Women and bankers first. Children and men will have to stay behind."

Wed, 02/23/2011 - 10:45 | 988232 unwashedmass
unwashedmass's picture

i'm not excited. Ben will rev up the helicopters.....and this time, he might, now don't get your hopes up,

he might give $250 to each peasant "to help with the gas price"....

whoa.......

Wed, 02/23/2011 - 10:49 | 988248 Rusty Shorts
Rusty Shorts's picture

Just wait till Oil is once again percolating up out of the ground in Pennsylvania, we will be burning the stuff off just to get rid of it, happy days are just around the corner !!

 

Oh yeah, there's a godzillion barrels of Oil under the Rocky Mountains ;-)

Wed, 02/23/2011 - 12:35 | 988733 dark pools of soros
dark pools of soros's picture

exactly - in fact, let's just start moving cities underground closer to the oil! Can't let Atlantis keep their advantage forever

or better yet, do we really need the first few layers of the Earth's crust??  it is really getting in the way of our margins

Wed, 02/23/2011 - 12:02 | 988594 Mad Max
Mad Max's picture

PERFECT comments, Rusty and samsara.

Don't forget ethanol (from corn made using diesel) and solar PV while you're at it...

Wed, 02/23/2011 - 13:51 | 989200 Bicycle Repairman
Bicycle Repairman's picture

Just jam a dinosaur into Spindletop, and you'll get your .29 cent a gallon gas.  Use a cheap dinosaur.

Wed, 02/23/2011 - 13:52 | 989201 Saxxon
Saxxon's picture

+1 Rusty; someone doesn't know their history, doesn't get the joke or just doesn't like you. 

 

Wed, 02/23/2011 - 10:37 | 988198 Cleanclog
Cleanclog's picture

Saudi would be hard to topple, especially now that King Abdullah has returned and promises $400 Billion for unemployed and "social programs".  That's a lot of moolah per person in SA.  And less gold gilding for palaces (unless that is considered a social program) - so gold could trade down.

Nah, social programs could be buying gold for the minions.  /sarc off

Wed, 02/23/2011 - 10:41 | 988216 Critical Path
Critical Path's picture

There goes 2011's fake GDP! Damn...

Wed, 02/23/2011 - 10:56 | 988278 jus_lite_reading
jus_lite_reading's picture

You mean we won't get a 4.5% GDP growth this year? Ok, then in 2012 for SURE! (Dr. Deficit promises by December 21st 2012!) LMAO

Wed, 02/23/2011 - 10:42 | 988220 fragrantdingleberry
fragrantdingleberry's picture

The real concern is not high energy prices but solar flares.

http://www.newscientist.com/article/dn10189-solar-flares-will-disrupt-gps-in-2011.html

Wed, 02/23/2011 - 10:51 | 988263 Oh regional Indian
Oh regional Indian's picture

Cool handle FD.

And why would any sane person junk you.

Spot on. 

ORI

Wed, 02/23/2011 - 12:19 | 988676 fragrantdingleberry
fragrantdingleberry's picture

ORI: There are a lot of insane people on this site and I'm not sure about my own state of mind.

Wed, 02/23/2011 - 10:49 | 988249 Oh regional Indian
Oh regional Indian's picture

200 dollar oil is coming for a whole host of reasons, well known to everyone here.

The question is, are we talking nominal or fur realz dollears.

In realz, it might be $400 a bbl too. Before long.

ORI

http://aadivaahan.wordpress.com/2011/02/23/ihumor-for-un-funny-days/

Wed, 02/23/2011 - 10:58 | 988289 jus_lite_reading
jus_lite_reading's picture

The global economy can't handle $150 oil right now; nevermind $200 or $400. ORI, you're really talking about a global war at $200... oh, yeah; I'm predicting that as well.

Wed, 02/23/2011 - 12:38 | 988757 dark pools of soros
dark pools of soros's picture

yes global war..  we totally need to kill more young people to make every country look like Japan's demographics..   can we instead have a Senior War? only 60 years and over are allowed to fight?

Wed, 02/23/2011 - 14:35 | 989271 A Texan
A Texan's picture

"can we instead have a Senior War? only 60 years and over are allowed to fight?"

 

Yes, think of the savings when the meals are all Early Bird Specials!  Also, no need for night optics, they'll all be asleep by 8 PM.

 

Seriously, you wouldn't want to mess with some of the seniors I know - a bunch of them served in Korea and VN, and they can still put out a rat's eye with a bullet at 200 yards.

Wed, 02/23/2011 - 10:51 | 988251 kaiten
kaiten's picture

Stagflation, bitchezz!

Wed, 02/23/2011 - 10:55 | 988254 malikai
malikai's picture

Everybody look the other way because Brent is flirting with breaking $110 right now.

EDIT: Oh, nevermind. Maybe we'll dip back to $110 tomorrow.

Wed, 02/23/2011 - 10:51 | 988257 stoneman sacked
stoneman sacked's picture

$220 Oil is an apocalyptic scenario. Unless Uncle Ben prints another trillion it wont happen

Wed, 02/23/2011 - 10:53 | 988269 HedgeFundLIVE
HedgeFundLIVE's picture

thoughts on DBO, an oil ETF that has a low correlation to an unpredictable mkt = good for hedging purposes:

http://www.hedgefundlive.com/blog/ways-to-hedge-a-market-that-depends-on-the-actions-of-crazy-people

Fri, 02/25/2011 - 16:39 | 997824 Panafrican Funk...
Panafrican Funktron Robot's picture

If you're trying to hedge crazy, and let's be honest, the entire fucking thing is crazy, why not 50/50 longs in EDV & GLD?  +41% NAV gain 2008 - 2010 playing this pair equal weight, correlation is almost 100% inverse.  Pocket the div/cap yield from EDV with GLD as your CYA if the EDV takes a shit (likely scenario, but who the hell really knows?)

Wed, 02/23/2011 - 11:10 | 988349 Thunder Dome
Thunder Dome's picture

DING DONG GET LONG!

Wed, 02/23/2011 - 11:10 | 988351 CrashisOptimistic
CrashisOptimistic's picture

So annoying.  They do not have a FUCKING CLUE what the spare capacity is of ANY of these countries.  They take the country's declarartion of such as gospel.

There is NO PROOF whatsoever KSA can pump a drop more than they pump RIGHT NOW.

How's that $200 estimate look if they are flat out?

Wed, 02/23/2011 - 11:14 | 988366 samsara
samsara's picture

A humorous look into our possible future.  Prophetic little article by Chip a few years ago. 

Make sure to take a couple of minutes and read it.

VERY funny.  See how it could unfold...

i'm including just a snippet.

Sixty Days, Next Year

by C. Haynes

You'll have to excuse me, but I don't usually keep a diary. These events began before I understood what was happening, and where it was all headed. It was only later, after it was all going on, that I thought that maybe I should be keeping some sort of record--as if no one else was. We live in The Information Age, or did. Now it's just The Dim Ages. Welcome to my world.

June 14
It all started (for me) with just a small item on an Internet news page, "Trouble in the Kingdom". I thought they were talking about Disney World (the Magic Kingdom) so I clicked on it. Turns out they were talking about "the repercussions of curtailed social services in Saudi Arabia". (Insert a big yawning noise here.) So their kids don't get free day care? Big whoop. I scanned the article for any mention of M. Mouse and then went on with my life. My mistake. No biggie. Really.

June 15
Yesterday's headlines are still today's news? I guess those folks in the sand are really upset about something--it was in all the papers today. Sounds like the Saudi government is in for a tough time trying to rein in a runaway budget--and the locals don't like it one bit. Now their capital (Riyadh?) is a mess with people getting ugly in the streets. Yeah, yeah, yeah, no more subsidized housing. Deal with it, people. Get a job.

June 16
I saw the news today, oh boy. Three Saudi cities are up in flames, people with big guns are going nuts, and everyone that can find a plane is leaving that country in one big hurry. It's like Saigon in a sand box. (Not that I actually remember Saigon.) Local news guys are talking about what it means to us--and our oil. Maybe I'd better go fill up the car before everyone else does. I hate being stuck in long lines.

<SNIP>

 http://www.newcolonist.com/dim_ages.html

Wed, 02/23/2011 - 11:17 | 988394 financeguru500
financeguru500's picture

+1000.

Thank you so much for linking this. I had read this story back in 2007 and recently I was thinking of it but couldn't remember what it was called or how to find it. This could be the perfect book if the author decided to write a bit more and make it a couple hundred pages.

Wed, 02/23/2011 - 12:41 | 988769 dark pools of soros
dark pools of soros's picture

time for another War of the Worlds moment??  via Twitter?

Wed, 02/23/2011 - 11:16 | 988386 MiddleMeThis
MiddleMeThis's picture

It was on here that I read US oil supplies are at their highest ever!  So, pardon me for saying, but what the hell does supply and demand have to do with the price of oil?  It's just another bullshit way for Wallstreet to make more money. MSM will slather the masses with these stories of unrest and halted oil production just so the powers that be can raise oil prices and have the working class believe that there is no other choice.

Wed, 02/23/2011 - 12:00 | 988580 CrashisOptimistic
CrashisOptimistic's picture

US oil supplies are not at their highest ever.

That point in time would have been about 1895.

 

 

Wed, 02/23/2011 - 12:04 | 988605 Mad Max
Mad Max's picture

"Highest oil supplies ever" here in the US might mean that we have 5 days of refined products in storage instead of the usual 3 or so.  The US oil industry (and oil industries in many other countries) is the epitome of just-in-time delivery.  Not that it would be very practical to store a couple months' worth of production at the rates that we consume.  So, got any plans for your day next Tuesday?

Wed, 02/23/2011 - 17:27 | 990372 MiddleMeThis
MiddleMeThis's picture

Yes, on Tuesday I will be trading in my SUV for a skateboard!  :-)

Wed, 02/23/2011 - 11:19 | 988402 Tortfeasor
Tortfeasor's picture

This thread just metioned on radio by Glenn Beck.  Does that mean ZH has gone mainstream, or has GB?

Wed, 02/23/2011 - 12:22 | 988688 fragrantdingleberry
fragrantdingleberry's picture

GB mainstream? The dude is straight out of The Book of Revelation.

Wed, 02/23/2011 - 11:23 | 988415 alphaSheikh
alphaSheikh's picture

Party in the GCC this weekend... We are inviting Creedence Clearwater Revival to sing "Have you ever seen the Rain?"....  cuz it's gonna rain Ben Bernanke paper for a long time to come.

$220 here we come !

Wed, 02/23/2011 - 12:02 | 988584 CrashisOptimistic
CrashisOptimistic's picture

Why would you think so?  He can't print oil.

His primary mandate is inflation.  If oil drives it up by increasing the costs of landlords, forcing them to raise rents, then he would tighten, not loosen.

Wed, 02/23/2011 - 11:58 | 988572 qmhedging
qmhedging's picture

Russia is waiting

Wed, 02/23/2011 - 12:22 | 988693 r101958
r101958's picture

Spare capacity? Bwahahahhahahahahhahaha! I hate to say it but I will be looking for the 'deer in the headlight' faces of all the talking heads on CNBS. How about this; Saudi production has peaked and is now on the slide? That would explain a whole lot of recent geopolitical problems. One has to wonder, with all the current turmoil in the ME, if the pols don't get a ready made 'cover my a$$' excuse for rising oil prices? The prices can now be blamed on revolution in the ME instead of on PO and then they are off the hook for the terrible planning, no planning and/or kicking the can down the road policies. No?

Wed, 02/23/2011 - 14:34 | 989481 A Texan
A Texan's picture

...and then there's the old standby from the Obama playbook...

wait for it...

wait for it...

almost here...

...its BUSH'S FAULT!

Wed, 02/23/2011 - 14:54 | 989575 falak pema
falak pema's picture

Dubya had only one fault to account for : he was born a man in 1946. He should have changed sex at young age. But that was his father's fault. So it goes back two generations. Barbara Bush was the most intelligent of the Bush clan. She was no sheeple like her son. King sheeple. But I'm being tongue in cheek for those who venerate his WH passage in the two terms as head man.

Wed, 02/23/2011 - 15:52 | 989885 Cash_is_Trash
Cash_is_Trash's picture

Yet, Obama continues to defy Bush Jr's disastrous terms. Obama is much worse than Dubya by a long-shot.

CHANGE, CHANGE we can finally believe in!

HA FUCKING HAA

Wed, 02/23/2011 - 17:18 | 990323 PulauHantu29
PulauHantu29's picture

What does Nomuira know? They are the ones who predicted gold will hit $1,400 too....How crazy is THAT?!....lol.

Wed, 02/23/2011 - 19:14 | 990771 MarcusAurelius
MarcusAurelius's picture

Would you pay $200.00 for a case of beer? How about $50.00 for each kilowatt of energy your house uses? No? What about $500.00 for groceries every time you go shopping? All the same time your salary is what it is NOW or less? I don't know maybe you would? Ok if your making 500K to 2 million a year maybe you don't mind as much but for the rest of us....uhhhhh I don't think so. Would I pay the prices of gas at $250.00 per barrel. Not a fiddlers chance in hell and we at least have it here in Canada. If the price of gas doubled or tripled from where it is now my car would sit idle quite a bit. I can assure you of that. Not too long after that there might just be this miraculous discovery of a new technology or a way to utlize scare oil far more effectively and efficiently. Don't think so? Then you miss the lessons of history. I have found it quite intersting that the price at the pumps has stayed at roughly the same price as it was when oil was $72.00 a barrel. A little lower but not much when it was $55.00 a barrel. When it was $147.00 a barrel back in 2007 it was a little higher but it took time to get there and when it was 125.00 a barrel the price was slightly but not that much as in .10 a litre more. Artificially controlled? You bet your ass it is. It isn't quite consumer screaming level yet but they will start to scream a lot quicker than in 2007 I can assure you of that should it continue to climb. Geithner and his stupidity calls that the economy can weather this storm and continue just fine????? Sure Tim.....and I have a lot of swamp land to sell you somewhere in the pits of South America too.

Sat, 05/21/2011 - 00:54 | 1297636 kummar
kummar's picture

If indeed these are the actors set on setting the world ablaze, they are more than likely the same ones who are involved in Greece, Portugal, Dubai, and elsewhere. Presenting: Moore Capital, Brevan Howard and Paulson & Co... Oh and JP Morgan and, ahem, Goldman Sachs.1975 Toyota Pick-Up Truck AC Compressor

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