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New translation, the Magna Carta
 

 

30.05.2004

how vulnerable are saudi oil supplies?

“ Typically, a decision by OPEC to increase quotas cools prices. This time may be different. A soaring world economy has sucked global inventories dry. Nearly every OPEC producer, save Saudi Arabia, is already producing about as much oil as it can. That means that any new OPEC promise of oil will have to come chiefly from the Saudis themselves - and that is not good news.

“The main reason for worry is the so-called "terror premium". Oil traders report that fears of terrorist attacks that might disrupt Middle-Eastern oil exports may account for as much as $8 of the current per-barrel price. That may be because what was once unthinkable now seems possible, perhaps even inevitable: a major terrorist attack, or series of attacks, on oil facilities within Saudi Arabia.”

“Amy Jaffe of the Baker Institute, at America's Rice University in Texas, observes that in 1985 OPEC maintained about 15m bpd of spare capacity - about one-quarter of world demand at that time. In 1990, when Iraq invaded Kuwait, OPEC still had about 5.5m bpd of spare capacity (about 8% of world demand). That, argues Ms Jaffe, meant that the cartel could easily and quickly expand output to absorb several disruptions at once.

“That is simply no longer true. Today's fast-shrinking spare capacity of about 2m bpd is less than 3% of demand - and it is entirely in Saudi hands......”


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