WASHINGTON—This week's announcement that oil giant BP's trans-Alaska pipeline would shut down indefinitely struck a blow to U.S. oil production and sent shudders across global oil markets.
But the oil produced from Alaska's Prudhoe Bay accounts for less than 3 percent of U.S. oil consumption, and its temporary absence alone wouldn't matter much. Trouble is, this relatively small problem isn't alone.
Bigger geopolitical problems are the real driver of today's high oil and gasoline prices.
"We're seeing about 2 million to 2.5 million barrels a day missing" from world markets, said Peter Beutel, the president of Cameron Hanover, an energy consultancy in New Canaan, Conn. "There's oil missing in action, and this Prudhoe Bay problem just adds to that. Right now there is just not a very satisfactory cushion to fall back on."
In recent decades, when oil production was disrupted somewhere, spare production capacity could be tapped that could pump 3 million to 5 million barrels per day. Much of it came from members of OPEC, the oil-exporting cartel.
Today, the U.S. Energy Information Administration thinks that the growing global demand for oil has left OPEC's untapped production capacity at 1.3 million barrels per day or fewer. If there are supply disruptions anywhere, that's only a small margin of insurance.
Given today's high prices, it may be surprising that there's no oil shortage. In fact, the EIA reported Wednesday that U.S. commercial inventories of crude oil totaled more than 332.6 million barrels. That's higher than the average U.S. crude inventory during the first week of August from 1983 through 2005, which was 326 million barrels.
U.S. refiners use about 15.6 million barrels of oil daily to make fuel products. So today's higher-than-average inventory means that companies have enough crude in stock for 21 days of refining into gasoline and other fuels.
So if there's no shortage, why are prices so high? Fear. And hoarding.
Oil markets are running scared. Contracts for future deliveries of oil are more expensive the farther out they date. Historically, when inventories grew, oil prices were falling. But because buyers today are stockpiling, those who buy contracts for future delivery are betting that prices will rise even higher. They're buying defensively.
That makes sense, because political unrest and production declines in many of the world's oil-rich regions threaten future world oil supplies. Conflicts include mounting unrest in Nigeria and the threat that Israel's invasion of Lebanon could spark a broader Middle East war that impedes oil shipping through the Persian Gulf.
Another important factor often is overlooked: Attacks by insurgents in Iraq are keeping 700,000 to 1.4 million barrels per day of potential oil production out of world markets. That's the biggest loss of oil anywhere.
Further complicating the global outlook, the heart of hurricane season is just around the corner. U.S. Gulf Coast oil production accounts for 27 percent of domestic production and has yet to return to normal after last year's devastating one-two punch from Hurricanes Katrina and Rita.
Should another hurricane tear through the Gulf of Mexico, expect oil prices to soar past $80 a barrel and gasoline prices to approach $3.50 a gallon nationwide.
"Most people feel it's just a matter of time, at this stage," Beutel said.
Today's oil prices are the highest, after adjustment for inflation, since late 1982, according to the EIA. The all-time high oil price was set in December 1979 at $100.52 in today's dollars, according to Inflationdata.com.
Yet today's high prices aren't reducing Americans' thirst for oil. The United States consumed 25 percent, or 20.7 million barrels per day, of last year's global petroleum consumption. The EIA projects that U.S. oil consumption will grow nearly 2 percent in 2007—another 400,000 barrels per day.
Here are some other geopolitical reasons behind today's high oil prices:
_Nigeria: Rebel attacks in Africa's largest producing nation have taken 500,000 to 650,000 barrels per day off global markets.
_Iran: Escalating conflict with the West over its nuclear ambitions has oil traders worried that OPEC's second-largest oil exporter could withhold supplies or sabotage tankers moving through the Straits of Hormuz.
_Venezuela: President Hugo Chavez is canceling oil-production contracts with Western firms and favoring Russian and Chinese state oil companies in new exploration agreements. Venezuelan production hasn't recovered from a devastating strike in 2002-2003.
_China: Its oil consumption grew by a third from 2003 to 2005, and its appetite for oil was underestimated as its economy grew more rapidly than expected over the past decade.
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For more on why oil prices are so high, go to www.eia.doe.gov/emeu/steo/pub/special/high-oil-price.html
For the Energy Information Administration's latest short-term energy outlook, go to www.eia.doe.gov/emeu/steo/pub/contents.html
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(c) 2006, McClatchy-Tribune Information Services.
GRAPHICS (from MCT Graphics, 202-383-6064): ALASKAOIL
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