The nuclear standoff with Iran, domestic violence in Nigeria presented the oilpatch with a golden opportunity to once again ratchet up prices to levels approaching Katrina induced levels. On Monday/Tuesday the price of crude spiked $2.34 a barrel.
The New York Times, always happy to be supportive of the oilpatch/OPEC mantra of impending shortage and disaster underpinning ever higher prices, pontificated in its "Energy Impasse" editorial the day before "Today's global market is so tight, there is little spare capacity left....There's no shock absorber left...That leaves us with zero options when it comes to leverage against these oil producers."
What the Times and the press generally overlooked telling us was as follows. Iran produces some 4 million barrels a day of which 2.6 million are exported. The Nigerian production loss is approximately 200,000 barrels a day, a shut down that in all likelihood will be shortlived. Assuming a worst case scenario, that Iran stops all exports for a year and Nigerian production is similarly impacted the loss of supply to the world market would be a billion barrels of oil.
At this very moment, according to the International Energy Agency (the I.E.A.) stock levels held by I.E.A. members alone are at 4.1 BILLION BARRELS OIL. Of these 1.4 billion are held in strategic government reserves and the balance are held commercially. The United States alone holds 700 million in its Strategic Petroleum Reserve whereas our commercial reserves today approach 318 million barrels, some 30 million barrels greater than a year ago.
Given the reserves at hand one would only wish Iran would embargo its oil exports. Its economy, almost wholly dependent on oil revenues would likely collapse within the year and with it the current Iranian government. The United States does not import Iranian oil but oil being a fungible commodity, the Iranians are counting on their oil card to bluff and browbeat oil consuming nations to acquiesce to their nuclear and other national policy goals.
What a coup if we, together with the I.E.A., had the gumption to say to Iran "make our day". You stop exports, we will immediately release our strategic stockpiles to the market as they are needed, including to those markets most directly affected by your cutting supply, namely China and India. Just a declaration of intent to that effect by Energy Secretary Bodman would likely cause oil prices to retreat by $10/bbl almost overnight.
Even more importantly by calling Iran's bluff we would have forced it to fold its hand with all the strategic and political implications that would ensue. Ahmadinejad, let's hear it!