Just when you thought it was safe to go back in the water, oil closed back up above $63 a barrel today. I earlier expressed the opinion that demand pressure would prevent an oil price collapse. But the news driving the market this week seems not to be demand but instead new concerns about supply.
So what’s up? Two developments deserve mentioning. In Iraq, oil exports in December were at their lowest levels since the war began. Sabotage in the north and bad weather in the south brought oil exports last week temporarily to a halt.
And then there’s the little matter of Iran. How seriously should we take the saber rattling? Kevin Hassett (hat tip: Institutional Economics) suggests looking at the TradeSports contract that pays $1.00 if there’s an overt air strike by the U.S. or Israel against Iran by December of this year. The price has now moved up to suggest a significant probability of that event.
Dave Altig offers a list of things you could worry about for 2006, but concludes with the statement
If real trouble arrives, it will come from a place that’s not even on the radar at the moment.
I notice that Iran didn’t seem to be on Dave’s radar screen at the moment.