Oil prices rise on more than speculation

So we see the cost of getting a tanker to move your oil is sky rocketing. And the quality of Libyan oil is some of the best oil in the world. As Bloomberg News goes on, "Europe is the largest importer of Libyan crude and at least seven oil companies' output in the country, Africa's third-largest oil producer, has been disrupted. Six tanker owners have said they loaded at Libyan ports in the last week, possibly taking oil produced before disruptions. Protests in northern Africa have toppled leaders in Tunisia and Egypt.”

"The French and the Italians are trying to secure as much cargo from the countries that are operating as normal," said Sverre Bjorn Svenning, an analyst at Fearnley Consultants A/S in Oslo, part of the Astrup Fearnley A/S shipbroking and investment banking group. "Quite a few ships are waiting off Libya so some of the transportation capacity is also idled. West African and Caspian Sea crudes have surged to the highest in more than two years as European refiners find their grades more suitable for replacing disrupted Libyan exports."

The other reason why this is not just speculation is the increased risk of getting oil from point A to point B. What I call the insurance cost, which is a real cost not just the result of speculation. The risks in the region are at the highest level perhaps ever. The tumult in the region that began in Tunisia continues to spread. There is still tension in Egypt, home of the Suez Canal. There are demonstrations in Iraq, Iran, Yemen, Bahrain, Algeria and Oman. In Saudi Arabia, the world's largest oil producer, they are calling for "days of rage" starting on Friday. Now just contemplate the amount of oil that we have to include with an increased risk premium. Saudi Arabia was producing 8.4 million barrels a day, Algeria 1.25 million barrels a day, Iran 3.705 million barrels a day, Libya 1.385 million barrels a day, Iraq 2.595 million barrels a day.

The stunning price increase has the Obama administration panicking. The blame will in part fall on their shoulders. Their anti-energy policies may come back to bite them. Over the weekend White House Chief of Staff William Daley said the administration is "looking at the options. The issue of the reserves is one we are considering." "It is something that only is done -- has been done -- in very rare occasions. There's a bunch of factors that have to be looked at and it is just not the price," he added. "All matters have to be on the table when you go through -- when you see the difficulty coming out of this economic crisis we're in and the fragility of it."

Of course at this time, a reserve release may not help very much. Refiners are scrambling for supply here in the United States so a release at this time would not be advantageous. In fact a premature release could do more damage than good. What we are seeing is a historic risk to the global oil market. I could go on with more fundamental reasons for the price increase and will address these in coming days.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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