03-02-2003 06:27									#1
	War 'would mean biggest oil shock ever' - are we ready? Tired of ads?

Are we ready for a recession?

Well that is what I am implying, however the first part is the statement from Goldman Sachs.

quote: The world will suffer a bigger oil crisis than that during the Arab-Israeli conflict of 1973 if the US declares war on Iraq, according to leading US investment bank Goldman Sachs. 'The combined effect of Venezuelan and Iraqi disruptions has the potential to be the biggest shock in oil market history, even allowing for offsetting supply increases by other players,' says Gold man's respected analyst Jim O'Neill. Crude oil prices of $31.10 per barrel - a two-year high - do not include any war premium, says the team. It argues that tight supply conditions, small inventories, and severe capacity constraints will see the price soar. 'A war could drive crude oil prices up by an additional $10-$15, or 30 to 50 per cent [to $46],' says Goldman's report, 'More Perfect Storm than Desert Storm'. The oil market is currently factoring in a far more benign outlook for oil prices, based on the experience of a rapid drop in prices as soon as US air strikes on Iraq began in 1991. But Goldman points out that there is less excess production capacity now, and that the market is overconfident in the capacity of strategic reserves to bring oil prices down. Use of strategic reserves may dampen near-term prices but will 'prolong price pressures', says the report. Low global oil stocks and reduced exports from strike-torn Venezuela have boosted prices by more than 30 per cent since late November. The Venezuelan 'outage' has cost 125 million barrels of production, already the fifth biggest supply shock in history, 'which almost entirely explains the current high level of prices'. If the strike continues for two months and an Iraq war lasts a similar time, the cumulative outage will be 600 million barrels, far more than the 400 million taken off the market in the Arab-Israeli war.

	03-02-2003 06:32									#2
	Support Apolyton, buy Galactic Civilizations

Link? I'm betting Guardian.

	03-02-2003 06:45									#3
	Support Apolyton, buy Call to Power 2

http://www.observer.co.uk/business/...,886866,00.html

heh... true, but it is Goldman Sachs report

	03-02-2003 06:47									#4
	Support Apolyton, buy Alpha Centauri

For every $1 increase in the price of oil, Alberta gets $108M (or $36/person) more in royalties per year.

It'd suck for most places though.

	03-02-2003 06:52									#5
	Support Apolyton

Highest estimate was around 160$ per barrel. Lowest but VERY unprobable was around current $ / barrel. Lowest estimate didn't counted Venesuela as far I know.
Bad scenario was US would use its own oil reserves and rest of the world would blow up US economy.

Look at Zmag, there was some nice article.

	03-02-2003 07:03									#6
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There's so many maybe's on that score though. As long as the other oil producing nations aren't disrupted, it will only have a marginal impact. After all, with the sanctions in place Iraq wasn't really providing all that much towards world inventories anyway. The real danger will be if the conflict escalates to the neighbouring states, with civil disorder taking hold throughout the Middle East.

	03-02-2003 08:55									#7
	Increase Your PM Length

Supply Shocks would be very serious, but I'm skeptical.

	03-02-2003 09:11									#8
	Got spare money?

The Goldman piece (econ-Dudley) I got on Friday said the impact of Venezuela was the more important of the two situations, and the resolution of either could drastically lower oil prices... so there.

Iraq has been doing about 3.5mm barrels a day, and the Saudis can bump production by around 5mm, but Venezuela sends most of their production to the US, and a replacement source is not available locally.

The oil futures curve is inverted due to the expectation that one or both crises will be resolved. 12mos forward is around $26 vs $35 cash.

	03-02-2003 10:21									#9
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FDR turned around the biggest depression in US history. Republicans say he doesn't deserve the credit-- it was the war.

Now that Bush has turned around the biggest surplus in U.S. history, Republicans will say, he doesn't deserve the blame--it was the war.

	03-02-2003 12:00									#10
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We're already in a recession. We are about to hit a depression.

in any case unless all of OPEC does an embargo on us, it won't rise much above $2 a gallon at the pump. It is about $1.50 at the pump where I live right now.

Last edited by Dis on 03-02-2003 at 12:20

	03-02-2003 12:50									#11
	Support Apolyton, buy Civilization III: Complete

dissident, its $1.65 where i live, and thats at the bargain gas stations, the average is $1.85. and this is for regular! the bay area sucks in that regard and we all dont make that much money.

	03-02-2003 12:55									#12
	Enter the AD-FREE zone

quote: FDR turned around the biggest depression in US history. Republicans say he doesn't deserve the credit-- it was the war. Now that Bush has turned around the biggest surplus in U.S. history, Republicans will say, he doesn't deserve the blame--it was the war.

Of course, FDR turned the economy around by running huge deficits, deficits that absolutely dwarf those that Bush is proposing...

	03-02-2003 13:00									#13
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The IMF estimates that every $5 increase in price for oil would result in .3 percentage point reduction in the growth of the world economy. The US' economy grew at 2.4% last year. So even with high price swings, the magnitude of the impact is certainly not cataclysmic, even if undesirable.

Further, it is in the interest of the swing producer--Saudi Arabia--to have $22-$28 oil. Over time, they will be able to make that price stick.

We're already in a recession.

No, we aren't.

	03-02-2003 13:44									#14
	Increase Your PM Length

If the actual supply of oil goes down then yes the price could go up. However if it goes up just because of a war and supplies aren't affected then it will soon come back down again. The proper oil shocks occured in the 70's when OPEC actually reduced their output.