$262 per Barrel Oil?

By: Lowell
Published On: 4/12/2006 8:20:47 AM

Yeah, $262 per barrel oil seems far-fetched, but so did $70 per barrel oil two years ago - and here we are, powering towards $70 and above.  Now, Fortune Magazine reports, a team led by Hermitage Capital's Bill Browder has "extrapolat[ed] the numbers from past oil shocks and then using them to calculate[d] what might happen when the supply from an oil-producing country was cut off in six different situations."  The results are not comforting, including the "fall of the House of Saud" scenario, which gets you $262 a barrel. The others?
* An Iranian oil embargo ($131 per barrel)

* An embargo by Venezuelan President Hugo Chavez ($111 per barrel)

*Civil war in Nigeria ($98 per barrel)

*Major attacks on Iraq's oil infrastructure ($88 per barrel)

*Unrest and violence in Algeria ($79 per barrel)

Here are a couple more of my own:

* Closure of the Strait of Hormuz, through which pass 17 million barrels per day of oil, for a sustained period of time ($200-$225 per barrel)

* A successful terrorist attack on Saudi Arabia's Abqaiq processing facility, which handles around two-thirds or so of the country's oil output (at least $120 per barrel)

Of course, it's possible that none of these scenarios may come to pass.  However, with world oil spare production capacity close to zero and essentially no "slack" in the system, that means that Murphy's Law is alive and well, In other words, if something CAN go wrong, it probably will.  Buckle your seatbelts.

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