Why Turkey's invasion of Iraq is not causing $100/bbl. oil

For months, the purveyors of conventional wisdom have told us that rising oil prices are the consequence of 1) speculators and 2) the ever-popular "geopolitical tensions."

So this morning, when oil spikes back up near the $100 mark, what gets the blame, with no factual basis?  #2:

Oil prices neared $100 a barrel Monday with supply concerns heightened
by a Turkish military incursion into northern Iraq and warnings by Iran
against further international sanctions.

Turkish troops fired more
than 40 salvos of artillery across the Iraqi border Monday into areas
held by Kurdish rebels. On Sunday, the military confirmed a Turkish
helicopter crashed in Iraq and eight soldiers were killed.

"The market perception is that (the incursion) could threaten the
supply of crude from northern Iraq," said Victor Shum, an energy
analyst with Purvin & Gertz in Singapore.

Turkey serves as an oil and gas transportation hub, and Iraq is a major crude supplier to Europe.

There's just one problem with this tidy explanation:  Northern Iraq generates 300,000 barrels a day — a drop in the world's 84-million barrel-a-day bucket. 

Nor does it wash to chalk up the current spike to the latest bluster from Iran and the threat of more Western sanctions,  As Outstanding Investments editor Byron King remarked last fall:

“What is with the 50% price rise in less than one year?
Is it just all about the U.S. and Iran talking smack at each other? At
$92 per barrel, is every barrel of oil in the world really carrying a
$30 ‘war risk’ premium?”

“The Energy Information Administration announced a drop
of 5.3 million barrels of oil in inventory, versus market expectations
for a 300,000 barrel increase. That is a 5.6 million barrel net
difference, on the negative side. There is a severe oil shortage before
the winter driving and heating season in the Northern Hemisphere.

“Compare this 5.6 million barrel shortfall with Iran’s
total daily oil output of about 3.7 million barrels. Really, which is
more important: the 5.6 million barrel supply shortfall or the tensions
between the U.S. and Iran?”

But even at this late stage of the game, people don't want to face up to fundamental supply-demand imbalances in the world oil market.  (Note please that neither Byron nor I have used the words "peak oil" here.  From where I stand, the term is no longer necessary to frame the debate — and in fact might be counterproductive.

Byron, by the way, has taken up the art of blogging on a regular basis at a new sister site of the Saloon; it's called Energy and Oil.   Highly recommended.

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