According to dispatches the recent events shut-down 75% of Libya’s oil exports. If the situation deteriorates into a full blown civil war then the output could dwindle to nothing. On top of that, when the UN Security Council starts talking about sanctions; you know you are in for a long haul. What that really means is whilst they “disapprove” they won’t do anything of any practical value to help resolve the violence; case-in-point Iran; which has had sanctions in one form or another for thirty years; and look what that “achieved”. Part of the problem is that no-one (at least not in any place nice), wants to have Gaddafi, so the sewer-rat has so where to turn and he has his back against the wall, and rats are always dangerous in such circumstances. Oh well perhaps Berlusconi will oblige, or perhaps those two best-buddies can trot off hand in hand to some place with a surplus of empty “luxury” real estate, and a relaxed attitude to all-cash transactions?
But aside from all that, could this be the end of the world as we know it? Will oil prices shoot up to $200 a barrel (WTI), and will America have to find (i.e. borrow), an extra $250 billion a year of foreign exchange just so that the lights stay on?
Hardly, or if they do, it will be nothing to do with Libya.
Round numbers Libya produces (produced) about 1.5 million barrels a day of oil which represents about 2% of what is currently being pumped worldwide. Lose that “colossal” source of supply, and if everything else is equal; then according to the most reliable (and fiendishly complex) supply/demand model ever known to mankind; (FOOT=3.33% x TOAD/OIK), a loss of 2% of supply will jack up the price of WTI by a “terrifying” $1.7 a barrel. [1]
That’s about how much any self-respecting “God’s Worker” can manipulate the price over lunch, (up-or-down, same difference). Sure $98 WTI and counting is 15% over the “fundamental”, at least the one determined by the principles of Parasite Economics. That’s the one about how much “milk” you can squeeze out of Daisy before she starts to MOO really loud and then tries to kick over the bucket. But $98 is just speculation and it’s nothing to do with the supply/demand dynamics (although that doesn’t mean it will stop at…
