Prudent Bear article on the oil shock that will are currently experiencing via Venezula and soon to be Iraq. Basically expect high oil prices to hang around for awhile.

But capacity utilisation in global oil is almost as high as it has ever been. Crude oil inventories are lower relative to consumption than at any time in recent decades. In three of the six largest oil-producing countries oil supplies are at risk due to geopolitical factors. In Iraq, a U.S. invasion appears to be imminent and Saddam may have mined all of the oil wells, according to various reports from Pentagon intelligence sources. There is ongoing political instability in Saudi Arabia, the world’s largest producer. Venezuela’s oil dependent economy is staggering under the weight of a labour dispute, which has disrupted oil exports. In this context, a war in Iraq could tip the balance in favour of a sharply rising oil price, which in turn could be the nail in the coffin of a teetering global economy.


The prospects of an oil shock are therefore as high as they have been in decades. According to a recent report by Goldman Sachs, “More Perfect Storm than Desert Storm”, low global oil stocks and reduced exports from strike-torn Venezuela have boosted prices by more than 30 per cent since late November. The Venezuelan 'outage' has cost 125 million barrels of production, already the fifth biggest supply shock in history, 'which almost entirely explains the current high level of prices', according to the study. If the strike continues for a further two months and an Iraq war lasts a similar time, the cumulative outage will be 600 million barrels, far more than the 400 million taken off the market in the Arab-Israeli war