Analysts are again ratcheting up their oil price forecasts. The emerging confluence of economic, market, and geopolitical factors is making a prediction of higher prices a safer bet with each passing day.
A glance at oil geopolitics early in May might, however, lead the casual observer to deem the preceding statement counterintuitive. He might well ask himself, after the fashion of the 1960s peacenik's musing: What if they declared an embargo, and nobody came? Or: What if they staged a coup, and nobody stayed?
Baghdad almost seemed sheepish in declaring an end to its unilateral embargo in support of the Palestinian intifada. At the same time, a reinstated Venezuelan President Hugo Chávez was quick to make conciliatory noises to his opponents. It was suggested that he might even relent on Venezuela's Organization of Petroleum Exporting Countries quota, in order to create more jobs to placate the unions instrumental in the abortive coup. But reading between the lines of these developments offers a different interpretation of the oil market's geopolitical drivers.
Iraqi developments
First, nobody-not even Iraq-took seriously calls for an oil embargo. While the 30-day loss of Iraqi supplies tightened the market a bit, it was more than offset by OPEC quota exceedances. More importantly, Saddam Hussein has often imposed unilateral embargoes, usually over a dispute with the United Nations over the oil-for-aid sales program. Such a move not only doesn't pose a problem for him-as he receives no revenues from these oil sales-it actually bolsters his position politically when he can point to the resulting suffering of Iraqi citizens under the sanctions regime.
What the brief embargo did accomplish, however, was to provide a rhetorical opportunity for the Bush administration to again press for "smart sanctions" that can crimp Saddam's warmaking capability while easing the delivery of humanitarian aid to Iraq's people. And the 5 permanent members of the UN Security Council on May 7 delivered Bush a victory by agreeing to the sanctions overhaul. Because Russia dropped its objections, approval of the new sanctions regime by the full 15-member council was all but certain in a vote scheduled at presstime for early last week. Thus the brief embargo by Iraq was but a foreshadowing of the likelihood that Saddam will again yank his country's oil supplies off the market this summer, in protest over the new sanctions. But the smart sanctions also place the onus on Saddam for interfering with efforts to improve the lot of Iraqi citizens. And thus it becomes a useful public relations assist for the Bush administration in its increasingly inevitable bid to oust Saddam.
Venezuelan, other concerns
While Chávez has taken steps to be more inclusive of other views in policy-making with a reshuffling of his cabinet and the board of state oil company Petroleos de Venezuela, not all of his steps have been toward rapprochement.
At presstime, tensions within Venezuela's deeply divided military were mounting after Chávez ordered a colonel to take over a key army brigade led by an opposition general who refused to surrender his command.
And the mercurial president earlier this month implemented a controversial new land law in order to seize 600 hectares of private land he claimed was underused. The last time such expropriation of land occurred broadly was in the 1960s, during Venezuela's last land "reform" program-when friends of the government were awarded lands taken from the political opposition.
These are hardly efforts to heal a sundered nation's wounds.
Meantime, the neverending Israeli-Palestinian agony threatens to ebb and flow with fresh atrocities and more fits and starts on peacemaking. And oil stocks dwindle with surging demand propelled by a US economy showing more robustness than expected-although Boston-based Energy Security Analysis Inc. sees an underlying residual weakness in global product demand.
Is it any wonder, then, that analysts are building new spreads into their forecasts of oil futures prices? Simmons & Co. International suggests a new price "band" (emulating OPEC's) might be in order for forecasters. The Houston investment banking firm said, "Given the mosaic of uncertainty that permeates the global crude oil markets, we are initiating our own 'price band' assumptions, which include high side and low side price forecasts of $30/bbl and $20/bbl, respectively."
Is it too late to launch a "crack spread" for oil price forecasts?
(Online May 10, 2002; author's e-mail: [email protected])
