Don't let oil 'emergency' rattle you
There's enough reserve capacity to offset any major supply disruptions, and OPEC's lack of urgency may be the single biggest sign that the crisis may soon pass.
Where's the emergency OPEC meeting? Where's the meeting of the producing countries that will set everything right and bring down the oil prices to levels that are not boom-or-bust like the last time in 2008, when the price of oil was cut in half just a few months after hitting $147? Why is the organization waiting until its regularly scheduled June meeting to talk about this emergency?
Because, believe it or not, there is no emergency. OPEC's calm because the Saudis have more than enough spare capacity -- double what it had three years ago during the last shock. That's right, double, according to JPMorgan's just-released The Eye of the Market bulletin, the most cogent piece of research to hit my desk each week.
Plus there are more than 4 billion barrels of spare capacity in strategic petroleum reserves worldwide, including in the United States. That oil can and should be released if things get out of control. In fact, the U.S. should be unleashing it now to offset the inflation it causes rather than raising rates which could break the entire economy ... in large part because of oil prices.
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Of course next week, March 11 and 12, are the scheduled Days of Rage in Saudi Arabia, and we can anticipate that there will be hand-wringing about that Saudi capacity coming off line until March 13. However, just as we anticipate the Days of Rage, so do the Saudis, and the country's security forces seem to be ready for the unrest, if there is any.
There's another reason there is no emergency OPEC meeting. You can bet, barring a Bahrain uprising -- one that I think even the U.S. is prepared to help stop -- that come March 13 we could see a real plummet in prices if the Days of Rage turn out to be the Days of Wine and Roses (although the former seems a little unlikely given the state's proclivity for temperance).
But I think the lack of an emergency meeting may be the best predictor of an oil peak, one that the robust equity markets are now forecasting.
Remember that in September 2008, OPEC members were plenty worried because of the quick decline in oil use from the higher prices. That seems right now to be as much a worry to the cartel as higher prices.
I find this lack of urgency to be the single biggest sign that the crisis may soon pass, even if both Libya and Algeria (another important source of oil) get shut down. We know there are no sure things in the Middle East, or at least no truly bankable prognostications after the past few weeks, but I find the lack of urgency from OPEC to be a hopeful sign that oil won't breach $110 here, the make-or-break level for consumer economic activity as it was in 2008.
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