Much like what occurred in July last year, oil prices look set to become a crucial political and economic issue over the next few months.
Firstly, there are the supply-side problems. Nigeria is Africa’s leading oil exporter and the fifth-biggest source of US oil imports. Whilst the Nigerian oil industry has been marred by political and economic strife since it’s inception in the 1950s, increasing rebel power is increasingly threatening supply. Kidnappings, bombings and other violence are now commonplace in the Niger Delta — daily output is already 695,000 barrels below normal production levels.
Yesterday, Nigeria’s powerful oil unions began a strike and threatened to target exports, seeking to reverse the sale of government refineries. The unions argue that the corrupt Government has sold its majority stake in joint ventures with international oil companies, which accounts for more than 90% of the country’s oil exports, without taking the welfare of workers into consideration.
As tensions rise in Nigeria, there are signs that the dispute over Iran’s nuclear ambitions could be entering a new, more troubling phase. A UN report published on Wednesday concluded that Iran was still defying the ban on uranium enrichment. This news coincided with US naval manoeuvres off the coast of Iran.
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The UN’s International Atomic Energy Agency reported that Tehran has been blocking efforts to probe suspicious nuclear activities, saying that meant it could not “provide assurances about … the exclusively peaceful nature” of its atomic program. Perhaps, even more worrying is the IAEA statement that expressed concern about its “deteriorating” understanding of unexplored aspects of the program. Things are not looking good.
These developments have led many analysts to predict that the price of a barrel of oil will rise to $US80 over summer. According to analysts, little has changed since last summer when prices almost hit $US80, except, of course, that OPEC decided to curb supplies by 1.7 million barrels per day, or about 6%.
Another factor coming into play will be wholesale profiteers, which has not impressed the RACV. Spokesman David Cumming said that the margin between the wholesale cost and retail price of fuel in Melbourne is “obscene and unacceptable”. Even so, the RACV predicts that next week’s peak will reach $1.49.
Onto the demand side. The US-based ABC News/Washington Post Poll released results of a poll overnight that found that three in 10 Americans won’t take a vacation road trip this summer due to the soaring price of ‘gas’. The average gasoline price is $3.22 for a gallon, and Americans on average say that at $4.38 they’ll significantly cut back on the amount of driving they do.
Similarly, a Morgan Poll in August 2006 found that the increasing price of fuel had caused financial hardship for one-in-two (50% — 48% capital cities; 54% country areas) Australian drivers, including 21% who say the added cost of fuel has caused them or someone in their household “serious” financial hardship. Furthermore, a considerable 35% of drivers said they would significantly cut back on driving if prices hit $1.50. Bike sales will be going through the roof.
Read more at Henry Thornton.