Are geopolitical tensions responsible for high oil prices?

According to OPEC, geopolitical tensions are causing a $15/bbl premium.

The implication here is dire for oil investors. As soon as the geopolitical tensions end (presumably we are talking about Nigeria and Iran) the price of oil will plummet by $15/bbl.

When interpreting OPEC statements, one should always assume they are self-serving. OPEC wants the world to think that oil prices will soon plummet in order to discourage non-OPEC investment in higher oil production.

One has to assume that the price of oil is driven by supply and demand. If the price is too high, then consumers of oil will consume less and a big stockpile of oil will build up or producers will have to cut back on their production. However we don't see rising stockpiles of oil, nor do we see declining production.

For the above reasons, I don't buy into the various theories that factors other than supply and demand are responsible for high prices. (The usual bugbears are OPEC, geopolitical tensions, hedge funds, and price fixing by big oil companies). Prices are high because the world is closing in on the peak of production of conventional oil, while at the same time demand is rising around the world, especially in China.

Companies that produce oil remain a sound investment.

Comments

[The Superfluous Man]

But OPEC, and more broadly state-owned oil companies, could increase production if they contracted or sold their oil fields to private oil companies. Cesar Chavez fired many working the state oil company there. Production has not returned to that peak since. To what extent this raises the price of petrol, I do not know. Admittedly, if demand is low enough, this effect matters not. But it currently isn't low enough. Together with your estimate for the effect of geopolitical tensions, the non- supply and demand price component is sizable.

[Timbo]

Everything the Saudi oil minister says should be followed by the phrase, "so keep buying those big SUVs."

"There is a 15% geopolitical premium. That could go away, so keep buying those big SUVs."

"It's due to a lack of refining capacity. Just build more refineries and keep buying those big SUVs."

Also, ummmmmmm, uhhhhhh, Superfluous Man. I, uhhhhhhh, think you might mean "Hugo" Chavez. I don't see how the deceased head of the United Farm Workers union would have the authority to fire "many woring the state oil company there."

[fish_hfd]

It's nice

[j]

we don't see rising stockpiles of oil, nor do we see declining production.

If so, Sir, the market is balanced and the price is right and OPEC is right. Yet it is not only supply and demand. A perceived threat of war in the gulf increases insurance costs, oil is highly taxed everywhere, there is a lot of politics and so on. And a lot of speculative money trying to profit from the fears of the importing countries.

[Zanshin Post]

Big Mike asked: Are geopolitical tensions responsible for high oil prices?

Well, it is certainly the other way around: High oil prices create geopolitical tensions.