The price of oil is already indicating to us that the current turmoil in the Middle East will not be resolved in the short term. Prices of most major grades of oil spiked last week after tensions heightened in Libya and, although they've retreated a bit, they remain volatile.
Further to this point, we've outlined in a chart below the highest closing price in February going back the last 15-years. Typically, February would be a relatively slower seasonal month for demand in the United States (the world's largest consumer) as the need for winter heating oil diminishes and summer driving season hasn't picked up. Interestingly, while the price of oil is still more than $40 from its all time high, it is very close to highest February close of $101.78 in February 2008. This abnormal and non-seasonal price movement emphasizes the powerful price move we are seeing.
“我们开始看到埃及和突尼斯式的大规模紧张局势正向一些主要产油国蔓延，这应该会给石油这种大宗商品提供重要支持。特别是伊朗与利比亚两国的抗议活动均有所增多。这两者之间具有相关性的原因在于，根据最近的数据显示，伊朗是石油输出国组织（OPEC）中第二大原油生产国，日产370 万桶石油，而利比亚也是规模较大的产油国，日产160 万桶石油。
看起来伊拉克将走上与俄罗斯极为相似的道路。这并不令人惊讶，因伊拉克战争和萨达姆•侯赛因下台之后紧随而来的混乱，造成伊拉克石油产量急剧下滑，至2007年初之前始终徘徊在日产油150万桶的水平。从那时起，后萨达姆•侯赛因时代的现代化和投资开始初见成效，伊拉克石油产量开始攀升。今年1月，伊拉克石油产量达到每日260万桶的战后最高水平，预计到年底时将达到自20世纪70年代末以来就未曾出现过的每日产油近300万桶的水平。事实上，正如《华尔街日报》（Wall Street Journal）在去年末所报道的那样，一部分伊拉克人认为产量增长对今后十年意义重大：
实际上，去年赢得伊拉克众多合约之一的荷兰皇家壳牌石油公司(Royal Dutch Shell)最近将该公司位于伊拉克Majnoon油田的产量从每日45,000桶增加至每日70,000桶。变化虽小，但是在逐步增加。
Earlier last month, we called out this potential impact of popular unrest in Libya and Iran in a note that underscored our long position when we wrote:
"We are starting to see Egyptian and Tunisian type popular tensions spread to some key oil producing states, which should provide a key support under the commodity. Specifically, both Iran and Libya have seen an increase in protests. This is relevant because, based on the most recent data, Iran is the second largest producer of crude oil in OPEC, at 3.7MM barrels of oil per day, and Libya is a sizeable producer as well at 1.6MM barrels of oil per day."
Given that Libya represents less than 2% of global production and that the IEA has over 1.6 billion barrels of oil in storage, clearly the current price movement is about more than Libyan disruption. Even if Libyan oil production were completely turned off, the IEA has enough oil in storage to offset that lack of production decline for a full year. Further, it is estimated that OPEC collectively has between 4 and 6 million spare barrels of daily production. So, why has oil gone parabolic over the past couple days? Simply put: oil is now trading on fear.
In effect, this is fear that popular upheaval goes well beyond Libya and into more significant producers in the Middle East (like Iran) and that the ultimate outcome is a transition in government, or armed conflict, that leads to a broad decline in oil production. An associated fear is that OPEC ultimately doesn't have the spare capacity they claim, which could lead to a global oil supply tightening quicker than most expect. Ultimately, this fear will continue to buoy and lead the world oil markets until we have some resolution or clarity in the Middle East, which certainly does not seem imminent.
Longer term there is a scenario, which certainly isn't consensus on a week like this, that vast liberalization and democratization in the Middle East could be positive for oil production. Russia is probably the prime example of this occurring.
In the late 1980s, Russian oil production reached a peak of production of 12.5 million barrels of production per day. Due to a decline of investment during the Soviet era, Russian oil production gradually fell thereafter and had fallen to around 6 million barrels per day by the mid-90s. The collapse of the Soviet Union combined with a privatization of the oil fields initiated a turnaround in production starting in 1999. Currently, Russia is back to near peak production levels due to privatization and subsequent modernization of its oil assets.
Iraq looks to be on a very similar path to that of Russia. Not surprisingly, with the Iraq War and the ensuing chaos following the removal of Saddam Hussein from power, Iraq oil production fell dramatically and was mired in the 1.5 million barrels per day level of production until early 2007. By then, post Saddam Hussein modernization and investment started to pay off and Iraqi oil production began to climb. In January of this year, Iraqi oil production hit a post-war peak in production of 2.6 million barrels per day and is expected to be near 3 million barrels per day by year-end, a level not seen since the late 1970s. In fact, as reported late last year in the Wall Street Journal, some Iraqis believe that growth in production could be meaningful in the coming decade:
"In all, Iraq hopes the work will boost output capacity from the current 2.5 million barrels a day to 12 million barrels a day in less than a decade. That would be a feat unrivaled in the history of the modern oil era. Last month, Fatih Birol, the International Energy Agency's chief economist, called Iraq a potential "game changer" for global oil markets."
In fact, Royal Dutch Shell (RDSA), which was awarded one of the Iraqi contracts last year, recently upped its Iraqi production from the Majnoon field from 45,000 barrels per day to 70,000 barrels per day. A small change, but incremental.
No doubt this is a long-tail type scenario, and a lot would have to happen for Western Oil companies to up investment in less stable regions like Iran and Libya, but both Iraq and Russia do provide some credence to the idea that production, over the longer term, could grow if the ultimately outcome is the spread of democracy and rule of law.