Oil Prices Jump Amid Renewed Mideast Troubles
Oil prices soared 8.5% and natural gas prices set records Thursday as the specter of Middle East war once again posed a threat to energy supplies around the world and raised fears of shortages and price spikes heading into an already supply-stretched winter.
Tensions were heightened Thursday by the terrorist attack on a U.S. destroyer refueling in Yemen, an Israeli attack on Palestinian headquarters and by renewed Iraqi threats to withhold the 2.2 million barrels of crude it now pumps--almost 3% of world supply.
Middle East oil experts downplayed the likelihood of a deliberate major interruption of oil supplies from the region. But the chances for such action seemed the highest in 10 years, underscoring the dangers of increasing U.S. reliance on Persian Gulf oil.
“Tensions are turning high,” said David Pursell, energy analyst at Simmons & Co., a Houston-based investment bank. “You have a convergence of things that have made the market nervous,” Pursell said.
War worries, along with an oil strike in Venezuela, sent crude oil prices for November delivery up $2.81 to close at $36.06 a barrel on the New York Mercantile Exchange, the biggest one-day gain on a percentage basis since June 1998. Natural gas rose 12.2 cents to close at $5.63 per million British thermal units. Heating oil prices surged to a 21-year high.
Analysts agreed that the dire conditions in the stressed-out energy markets made oil traders especially jittery on the news from the Middle East, which supplies 12% of U.S. oil consumption.
Global inventories are already dangerously low for crude oil, gas and refined products such as heating oil and gasoline. At the same time, rising consumption has taken all the slack out of the energy market, analysts said.
Crude prices set a 10-year high at $37.80 a barrel on Sept. 20, the highest price since the Persian Gulf War.
Thursday’s eruption in the Middle East refocused attention on the U.S. reliance on imported crude, which now represents 57% of all oil consumed in the nation, up from 42% in 1990.
“We import more oil overall [as a percentage of consumption] so if you have disruption anywhere in the world you will have higher prices,” said Roger Diwan, managing director at Petroleum Finance Co. in Washington.
Analysts downplayed the chances of a full-on, 1970s-style Arab embargo, saying that significant geopolitical changes have made it unlikely Persian Gulf suppliers will close ranks to turn off the spigot.
Arab nations, including Iran, went out of their way Thursday to say they will not cut oil production in response to the fresh hostilities.
“I don’t see a strong likelihood of a supply disruption,” said Sarah Miller, group editor at Energy Intelligence Group in New York. “The Saudis have stated quite clearly as recently as this week that they have no intention of using the oil weapon again. It’s been disavowed over and over and over again since the 1980s.”
Despite its special relationship with Israel, the United States is perceived as more evenhanded in Middle East affairs than it was in the early 1970s.
Moreover, Saudi Arabia and Kuwait are more dependent on U.S. military protection in the aftermath of Iraq’s invasion of Kuwait in 1990 and the ensuing Desert Storm campaign. The two Arab nations also have cemented their ties to the United States and Europe with investments that would suffer in an embargo and the global recession that would likely result.
And the aftermath of the energy crises of the 1970s was a decade-long slump in oil prices that cut deeply into the revenues of all oil exporters and triggered consecutive severe recessions.
But the current market, with supplies stretched so thin, doesn’t need an outright embargo to be thrown over the edge, said analyst Pursell. If Iraq withholds a significant portion of the 2.2 million barrels it exports currently, other producers could not readily make up the shortfall, which would cause prices to spike.
“It’s hard for me to imagine we’d have a repeat of the 1973 scenario where the Saudis and other OPEC countries blame the U.S. for Israel’s actions and consequently reduce production. But you never know how those things can be interpreted,” said Douglas Bohi, analyst at Charles River Associates economics consulting firm in Washington.
Of the 19 million barrels consumed daily on average from January through July of this year in the United States, about 10.865 million barrels, or 56.6% of total consumption, came from imports. Leading supplier countries were: Canada, 1.678 million barrels; Saudi Arabia, 1.490 million barrels; Venezuela, 1.463 million barrels, and Mexico, 1.348 million barrels.
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Dependent and Vulnerable
After a decline, American dependence on oil from the Persian Gulf has returned nearly to the peak of 1977, when it accounted for 13.3% of U.S. consumption. The nations total oil consumption reached a record 19.52 million barrels a day last year. Oil Imports 1981 Through April 2000
Share of U.S. oil consumption imported from the Persian Gulf versus all imports, annual averages since 1981:
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Sources: U.S. Energy Information Administration, Bloomberg News
Researched by NONA YATES/Los Angeles Times
