World energy crunch as nuclear and oil both go wrong

The existential crisis for the world's nuclear industry could hardly have come at a worse moment. The epicentre of the world's oil supply is disturbingly close to its own systemic crisis as the Gulf erupts in conflict.

Anthony Freda Illustration

Ambrose Evans-Pritchard
Telegraph

Libya's civil war has cut global crude supply by 1.1m barrels per day (bpd), eroding Opec's spare capacity to a wafer-thin margin of 2m bpd, if Goldman Sachs is correct.

Now events in the Gulf have turned dangerous after Saudi Arabia sent troops into Bahrain to help the Sunni monarchy crush largely Shi'ite dissent, risking a showdown with Iran.

Russia's finance minister Alexei Kudrin warned on Wednesday that the confluence of events in Japan and the Mid-East could push oil to $200 a barrel in a "short-lived" spike, which would snuff out global recovery.

While there has been no loss of oil output in the Gulf so far, the violent crackdown in Manama on Wednesday left four people dead and risks inflaming the volatile geopolitics of the region. The rout of protesters encamped at the Pearl roundabout had echoes of China's Tiananmen massacre.

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Remember $4 gasoline? Oil speculators are back

Kevin G. Hall
McClatchy Newspapers

WASHINGTON — Despite weak demand in the U.S. and Europe, oil prices climbed this week to near $90 a barrel and gasoline prices have passed $3 a gallon on the West Coast and parts of the Northeast.

Why? If demand is down and supplies are plentiful — and they are — why would prices be going up?

Because Wall Street speculators are driving up oil and gasoline prices again — just in time to dampen holiday cheer.

"It's all about investor optimism, and that's been the story about 2010 ... that's the primary reason why we're seeing oil prices at $90 (a barrel) and gasoline making an uncharacteristic climb in December towards $3 a gallon," said Troy Green, a national spokesman for the AAA Motor Club, which monitors gasoline prices.

AAA's Fuel Gauge Report shows the nationwide average for a gallon of regular unleaded gasoline stood at $2.968 on Wednesday. That's up 11 cents a gallon from a month ago and 33 cents a gallon over one year ago. That means it costs about $1.65 more per fill-up than a month ago and $4.95 more than a year ago.


It's even worse on the West Coast, where this week prices have averaged higher than $3.15 a gallon, according to Energy Department data.

If oil prices keep climbing beyond $100 per barrel, as Goldman Sachs projects for 2011, higher fuel prices may blunt efforts by the Obama administration and the Federal Reserve to stimulate the weak economy.

"I think we're at that point. With (nearly) 10 percent unemployment, it's a much more impoverished consumer that can't afford it. It's almost a bludgeoning instrument in terms of what it will do to consumer sentiment," said John Kilduff, a veteran energy analyst and partner in the hedge fund Again Capital. "What might have been a very bright shopping season could get the wind taken out of its sails by these high prices."

Rising prices could erase the stimulus coming from the 2 percentage point reduction in payroll taxes proposed this week by President Barack Obama and Republican congressional leaders. This would hit the working poor particularly hard.

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