Global Oil Price will increase
On Sunday, Tehran Times featured the story “Iran says ME tensions will propel oil price to $120” (link).
According to Nasser Sudani, vice chairman of the Energy Committee of Majlis (Iran’s parliament),
Oil price would rise to 120 dollars if tensions in the Middle East continued.
And today, AFP featured the story, “Oil surges above 93 dollars in Asian trade” (link).
According to David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney
“Geopolitical tensions, issues regarding tensions between Turkey and Kurdish rebels… those sort of factors have added to oil prices.”
The reasons given for the increase of the price of oil are the ‘usual suspects’, like:
Firstly, geopolitical tensions, for instance, caused by
- health of the US economy
- strength of the US dollar
- Middle East tensions, consisting of fear of:
- Turkey will invade the Kurdish region of Iraq
- War between United States and Iran
- United States imposes unilateral new sanctions on Iran
- United Nations Security Council will approve a new round of sanctions against Iran
- Military threats against Syria
- Military threats against Lebanon
Secondly, an increase of global demand, for instance,
- growing demand of China and India
- cold season demand
- stockpiling by the US and other Western countries
- speculation by traders
Third, a decrease of global production and supply of oil, for instance, caused by
- war in Iraq
- unrest in the oil sector in Nigeria
- hurricanes in the Gulf of Mexico
- declining oil fields in Mexico
(see also Key Global Issue: Mexico) - the impossibility of quickly increasing (on-demand) oil supply.
Also on Monday, Russia Today featured the story, “Oil price: the US$ 100 barrel on its way?” (link)
According to a forecast of Aleksey Kudrin, Deputy Prime Minister of Russia:
“The oil price is very high and this affects political events and some speculations. But if we talk about the longer term of 15 to 20 years, for which we’ve planned the economy, a more realistic price would be between US$ 50 and US$ 60. I say this because if the price goes too high, it will slow down economic growth and also spur the use of alternative energy sources.”
IDEA of Open-Ended Issues
Translated into most relevant Open-Ended Issues (OEIs) it gives the following table.
| KGI Energy - Global Oil Price | Remote | Unlikely | Even Chance | Probably, Likely | Almost certainly |
|---|---|---|---|---|---|
| Global economy is healthy | |||||
| Global oil prices will rise | |||||
| Global oil supplies will not be able to keep up with global oil demand |
|||||
| Global oil demand increases | |||||
| Global oil production / supply drops | |||||
| United Nations Security Council will approve a new round of sanctions against Iran |
|||||
| United States will act diplomatically with Iran | |||||
| United States imposes unilateral new sanctions on Iran | |||||
| United States will act military against Iran | |||||
| Turkey will invade the Kurdish region of Iraq | |||||
| Mexico oil production / supply decreases | |||||
| United States economy is healthy | |||||
| United States dollar is strong |
Causal Relations
The above factors with there causal relations placed in a causal map gives the following picture.
However, it is good to realize that not all causal relations between the OEIs are of the same order.
For instance, how strong is the impact of geopolitical tensions on the global oil price. Opinions will differ and are highly subjective. According to Big Mike’s Contrarian Investing Blog the relation isn’t that important.
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Updates
2007-10-31: Russia Today article added with implications for the causal loops map.