Wednesday, February 23, 2011

Nomura: Oil at $220 in ‘Worst-Case’ Scenario. Really?

Wall Street Journal

Nothing like a little kerosene on the fire.

Nomura Securities says that if Algeria joins Libya in the land of chaos, oil prices could shoot to $220 a barrel. That’s in a worst-case scenario, the investment bank adds unhelpfully.

To back up that headline grabber, Nomura compares the current situation to the 1990-91 Gulf War. During that time, oil prices rose 130% in two months, according to our friends at Dow Jones. Nomura defends the comparison by saying “we could be underestimating this as speculative activities were largely not present in 1990-91.”

Tagging onto the high-price meme, Chesapeake Energy’s CEO Aubrey McClendon says oil prices could stay “scary strong” for years, according to Dow Jones. Chesapeake, which sells a lot of natural gas that is looking kinda cheap today, is up 4%. As for the Nomura call, the 1990-91 comparison seems a bit fraught. That war took in the Saudi-Kuwait-Iraq-Iran sphere. According to the CIA Fact Book, Algeria and Libya combine to produce about 4 million barrels of oil a day. Saudi alone produces more than double that. Toss in its neighbors and the comparison gets weaker.

Oil keeps trending higher, even if it isn’t yet at scary strong $220 levels. WTI is up 2.5% at $97.90 a barrel on the Nymex and Brent crude is up 4.5% at about $110 a barrel in London.

Energy independence does not translate to conversion, regardless of time line, to green energies. It does mean that using our existing and available resources we come to rely upon our own abilities rather than those controlled by our current and potential enemies.America must reduce the percentage of energy it receives outside our borders and we must move yesterday on doing so. A rationale plan to address this issue is now overdue by a margin of time that may cause our slippery slope fall.

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