By the OGJ Online Staff
HOUSTON, Sept. 20 -- Markets may be overestimating the potential decline of global demand for energy in the wake of last week's terrorist attacks and could instead face the "almost certainty" of severe supply disruptions over the next 2 years, energy group analysts with Raymond James & Associates Inc. reported Thursday.
The newly declared US war on terrorism poses a 20%-30% risk of a major disruption in world oil supplies over the next few months, escalating to more than an 80% probability within 2 years, the analysts said.
"While many believe this war can be won with surgical strikes aimed at taking out Osama Bin Laden in Afghanistan, we believe there is a growing chance that Middle East oil-producing nations could become involved and potentially become targets of terrorist retribution themselves," the analysts reported.
This new kind of war "goes much deeper" than just Bin Laden, the suspected mastermind behind recent terrorist attacks in New York City and Washington, DC, they said.
"If the US is seriously committed (and we believe it is) to eliminating global terrorism," the report said, "then several terrorist organizations possibly linked to Iraq, Sudan, Libya, and Iran could be targeted as enemies. That leads us to think about what repercussions that could have, not only for the US, but our allies as well. Most notably, Saudi Arabia and Kuwait could see their oil fields and terminals become potential terrorist targets due to their cooperation with the US."
Oil supplies also could be disrupted if insurance companies refuse to shoulder the increased risk of providing coverage for offshore drilling and transportation facilities in the Middle East. "Without insurance backing (for those) multimillion-dollar assets, drilling and transportation could come to a screeching halt," analysts said.
Since April, Raymond James analysts have maintained a bearish outlook toward producers and service companies that are weighted primarily toward the recently deteriorating natural gas market. They anticipated that negative factors "more psychological than fundamental" would continue to undermine the market value of those companies through October.
But recent events seem to have accelerated that timetable and introduced "several potential positive catalysts," they said.
"After the massive sell-off of the last several days, we now believe that the energy stocks are at or very near the bottoming point," the analysts reported.
Today there is about 500 bcf more natural gas in US underground storage going into the peak winter season than there was a year-ago. That surplus contributed to the recent dive in natural gas prices.
But Raymond James analysts expect that differential to decline if the US experiences normal winter weather next January, compared to the warmer-than-normal temperatures during that same period this year.
Since the terrorist attacks last week, investors have focused primarily on fears that an economic slowdown would adversely impact world demand for oil.
"Looking out over the past 50 years, there have been only a few years where global oil demand has actually declined," the Raymond James energy group noted, however.
"Even if we assume that global oil demand declines by 500,000 b/d and non-OPEC production increases by 500,000 b/d each year, it would take 2 years before OPEC's excess capacity would reach 6 million b/d," the analysts reported.
As long as the excess production capacity among members of the Organization of Petroleum Exporting Countries doesn't exceed 6 million b/d, they said, "We think there will be enough cooperation among OPEC members to maintain oil prices in the mid-$20/bbl range."