If Iraqi oil goes off line, $200 oil is next

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Months before the ISIS rebels began their threatening move into Iraq’s southern regions, the International Energy Agency was imploring OEPC to produce and export an additional 1.2 million barrels per day (mbd) more oil by the end of

The sad fact is that out of 12 OPEC members, eight of them are collectively in decline. When summed together Algeria, Angola, Ecuador, Iran, Libya, Nigeria, Qatar and Venezuela were producing just over 14.5 million barrels per day in early 2005; but are now producing just 11.25 mbd.

These countries are losing nearly 500 thousand barrels per day of production per year.

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Any declines will only add to the pressure on Saudi Arabia. It would not only need to make up for losses in the sliding eight OPEC members’ production, but for any Iraqi losses as well. The loss of a million barrels per day would place a burden on Saudi Arabia that takes it to 100% of its stated production capacity.

The most dire scenario sees a regional conflict break out that pits the Middle East’s Shiites (Iran) against the Sunnis (Saudi Arabia), leading to a compromise of the Strait of Hormuz. Forty percent of the world’s exported oil flows through this waterway.

If conflict causes this flow to become restricted, then $200 per barrel would seem positively cheap. While this risk is small, it is a catastrophic potential outcome that cannot be dismissed. Prudent governments and investors need to begin factoring this in.

http://www.marketwatch.com/story/if-iraqi-oil-goes-off-line-200-oil-is-next-2014-06-17