Times are good in the oil business. Exxon Mobil just managed to smash the world record for outsized profits, notching up $10.7bn for the fourth quarter of 2005, and all the major oil players are reporting similar bonanzas thanks to the huge rise in the oil price in the last three years. Today, despite a barrage of forecasts to the contrary, the oil price is not far off $68 a barrel and is heading higher.
And when it comes to the oil price, “you ain’t seen nothing yet”, says NewsMax.com. As veteran investor George Soros points out, we should all be “very worried” about the supply/demand balance, “which is very tight” in light of the current tensions with Iran. Iran may have said it has no intention of cutting its production, and hence supply to the West, but that’s no guarantee it won’t – it has been a lone voice in Opec calling for production cuts.
Hermitage Capital’s Bill Browder is concerned too. Extrapolating numbers from past oil shocks, he has been trying to put numbers on various potential events. What if Iran were to stop exporting despite its assurances? The oil price, says Browder, would immediately soar to $131 a barrel, double its current level, due to the fact that however good the intentions of Opec’s other members, they simply haven’t the slack in their systems to make up the difference.
Still, $131 is small beer next to some of the other scenarios Browder has been modelling. If the House of Saud were to collapse, he says – an eventuality that is not likely in the immediate future, but entirely possible nonetheless – the price of oil would rocket to $262.
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