“ 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......”
