I think a recent article
titled ‘Libya Bombs and Saudi Bribes’ – reading time 3 minutes – sets out a
good summary of the significance of the 1.6 million barrels of light sweet
crude Libya produces each day. As
the article puts it, a loss of Libya’s 1.6 million barrels per day isn’t good,
but is not something that will lead to a collapse in supply. The article implies that amount of oil
supply would not be difficult to replace – Kuwait, Nigeria and The United Arab
Emirates each have said they will increase production by 300,000 barrels per
day, and the balance could come from Saudi Arabia. However, not all of this oil is of the light sweet quality
of the Libyan oil. This means the
average cost of refining would be higher – all of which is then reflected in
gasoline pump prices.
That said, should societal
issues arise in Saudi Arabia, who produces 9 million barrels per day, that
would be a horse of a different colour that could spiral U.S. retail gasoline
prices upward. Only about 10 days
ago it was reported the Saudi King introduced over U.S.$30 billion in welfare
payments – hoping that would result in a populace that would not ‘take to the
streets’ – hence the inclusion of the word ‘Bribes’ in the article’s title. So the big question is, will the type
of societal problems that have recently been ‘in vogue’ in Egypt, Libya, and
Tunisia find their way into the Middle East – and in particular will they find
their way to Saudi Arabia.
The article also notes that the U.S. Energy Information Administration (‘EIA’)
recently increased its latest crude price forecast to average U.S.$105 in
2011. If you are not familiar with
the EIA website I suggest you visit and consider bookmarking it. In my opinion is both easy to navigate
and highly informative.