Record Oil Price: A Ways to Go, But Time to Get There
Light Sweet Crude is touching another post-Panic of ’08 high this morning.
At $108.25, we’re still a stretch from the record $147 price set in July 2008. But it’s $2 higher than it was on this date in April of that year. So we’ve got time.
No single factor lies behind the latest run-up as we begin the trading week. Rather, a confluence of events across the Middle East and North Africa continues to make the markets nervous:
- The civil war in Libya drags on. Gaddafi’s forces and the rebels are stalemated and US airstrikes are doing little to shift the balance
- Bahrain’s government has shut down the leading opposition newspaper. Bahrain’s Shiite majority is ruled by a Sunni minority. The US Fifth Fleet, stationed in Bahrain, watches nervously
- Troops have opened fire on protesters in Yemen, killing 12 and wounding 30 critically.
Yemen has little oil to speak of, but it sits on the eastern side of a narrow waterway crucial to the world oil trade, described in Byron King’s “New War” scenario as the Bab-el-Mandeb, “the Gate of Tears.”
Yemen is home to a volatile religious mix – 52% Sunni, 46% Shiite. The dictator, Ali Abdullah Saleh, has ruled the place for 32 years.
Saleh has been helping the United States wage a secret war against al-Qaida sympathizers since Sept. 11. So unlike with Libya, the US government doesn’t want to see him go.
The problem is how Saleh is suppressing the protests – especially on the country’s northern border with Saudi Arabia.
“What Saleh’s been doing,” explains Nation Institute fellow Jeremy Scahill, “is taking sides with really extremist Wahhabi factions from Saudi Arabia and allowing the Saudis to go in and try to exterminate the Shiite minority inside of Yemen.
“So the Houthis [Shiite tribesmen] see him as a puppet of the US and the Saudis.
“The US and the Saudis are creating a situation that could draw in Iran to defend the Shiite population there. The dangerous game the US is playing in the north of Yemen could well draw in the Iranians because this is Shiites being exterminated, and it gets covered a lot on Iranian state television.”
“Saleh has lost allies,” the BBC reports this morning, “Yemen’s army is split. The government has lost control of entire areas of the country. And the economy is collapsing.”
Yemen, as we described in Apogee a year ago, is a demographic time bomb waiting to blow. Perhaps the fuse has already been lit. The desolate, arid country is also another front in the 1,354 year-old Sunni-Shiite conflict Byron’s describes in his New War scenario.
A year ago, the media laughed when Mr. King suggested the New War could send oil to $220 in a heartbeat. At $108 – and rising – journalists are beginning to sober up and ask different questions.
On the other side of the peninsula, Egypt state media reports police have thwarted an attack on a natural gas pipeline that supplies Jordan, Syria, Lebanon and Israel. The same pipe was recently reopened after an explosion at a terminal shut the pipe down for six weeks in February and March.
In response to the first incident, Israeli leaders ramped up efforts to develop a gas deposit known as Leviathan. With some 16 trillion cubic feet of gas, Leviathan is one of the world’s largest new gas fields of the past 25 years:
“The geology off the coast of Israel,” Byron explains, “has every indication of meeting criteria for a major ‘petroleum system.’ It has analogues with other of the world’s best hydrocarbon-rich areas. There are salt layers similar to, but not as thick as the pre-salt of Brazil. There are structures and stratographic traps, like off West Africa, with oil plays like Angola and Namibia.
“Plus, I think it’s fair to speculate that the really deep stuff offshore Israel has some similarity with what I’ve seen of the Wilcox Trend beneath the Gulf of Mexico.”