Iran adds upward pressure to oil prices

CGES ANALYSTS | DECEMBER 2011 | SOURCE: Global Oil Insight

The world’s economic problems are far from the only issues the oil market is grappling with. Currently, geopolitical concerns are applying upward pressure on the oil price as the market is trying to assess the likelihood of oil supply disruptions in 2012.

At the forefront is the prospect of a reduction in Iranian oil shipments. It seems possible that the EU, which imports around 500 tbpd from Iran, could impose an embargo on purchases of Iranian oil at the end of Jan-12.

Iran adds upward pressure to oil prices

At the other end of the scale there is the more drastic, but remoter, possibility of the temporary closure of the Straits of Hormuz as a result of conflict in the Gulf.

Global crude oil production

The CGES has calculated that 10.7 mbpd, or 14% of global crude oil production, could be at risk if this vital waterway were to become unnavigable, an event that would no doubt cause an immediate and severe spike in the price of oil in 2012.

However, about seven months’ worth of stock cover is available globally if this 14% were to be removed from the market, a fact that would temper the initial extreme price reaction.

Note, though, that such estimates do not take into account nightmare scenarios that involve damage to a key Saudi facility like the Abqaiq oil and gas gathering station.

Without these geopolitical threats to oil supplies it is clear oil prices would have been lower, in view of Europe’s travails and slowing economic growth in the developing world.

Indeed, the fear of supply disruptions could explain the rumours circulating last week that Saudi Arabia is currently pumping over 10 mbpd. If true, this news will not go down well with the Kingdom’s fellow-members at the next OPEC meeting on December 14th.

Related article: Can the west survive without Iran’s oil?

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