Now, at very nearly $107/barrel, you might think crude oil prices are pricing in all manner of supply shocks and disruptions. There seems to be a very large “fear premium” being baked in there, right? Well, not exactly. Our colleague Sarah Kent writes the following:
1314 GMT [Dow Jones] The risk of gas supply disruptions spreading from Libya into other countries in the Middle East and North Africa has not yet been priced into the market, even though as much as 3% of global gas supply is at risk, says Goldman Sachs in a research note. Potential disruptions on this scale would have a significant price impact, according to the bank. “Even if Algeria were the only [other country] to halt gas supplies…we believe that global gas markets could face a negative supply shock,” it adds.
I’m not trying to send you over the edge here, just trying to make the point simply that gas prices are going to keep rising. Would you be surprised at all if there were another disruption somewhere? But the markets would be?
Addendum: Eagle-eyed Ron Paul 2012 points out that in this particular snippet, Goldman was talking about natural gas, and I was talking about gasoline, and he’s right. My mistake. However, I do believe that if the Jasmine Revolution spreads in a material, even violent way to another oil producing nation, Algeria, or say Saudi Arabia, that you will naturally see another spike in crude oil.
Also, while I’m writing this we’ve got Fox Business on in the newsroom, and they’ve got some reporters out at gas stations interviewing people. With prices above $3.50, this is also going to become a big media story, which is only going to reinforce the anxiety people are already feeling at the pump.
Another place where additional supply disruptions apparently aren’t being priced in is in equities. DJIA up 54 here in the early going, as the market is just completely ignoring any and all news related to oil prices and the Middle East.
There are still people out there saying we can “handle” high oil prices. They’re probably the same people who were saying it in the summer of 2008.