Ready for a Saudi Black Swan Oil Super Spike?


"Prince threatens to 'cut off any finger' raised against the regime."

Prince Saud al-Faisal Oil is trading at $105/bbl. in New York and $115 for Brent crude. Despite false rumors this morning that Gaddafi was on a plane out of Libya, there's no end in sight to the civil war there and no indication that oil pumping will return to normal anytime soon. And what are we in store for on Friday? The Saudi government has banned demonstrations in the Kingdom. But Saudi activists are holding firm with their plans for a "day of rage" despite threats by Foreign Minister Prince Saud al-Faisal to "cut off any finger" raised against the regime.

Speaking at the CERAweek conference in Houston yesterday, Jadwa Investments Economist Brad Bourland said, "The protests on Friday are probably going to be a non-event."

But what if they are an event? Would the Saudis attempt to crush an uprising with as much violence as Gaddafi has? After all, those 8,000 pampered members of the royal family have a lot to lose.

With all the talk in the past three years of Black Swan events, it is worth thinking about what would happen to world markets if Saudi Arabia descended into chaos. A well-placed bomb on a pipeline leading from the mighty Ghawar field could knock off 5 million barrels per day.

The conventional wisdom before Libya's civil war broke out was that the world had an oil cushion of roughly 4 Mbpd of production capacity on standby–nearly all of which is held by the Saudis. Yet today, Ambrose Evans-Pritchard in the Telegraph quotes Goldman Sachs' Jeff Currie on his belief that the Saudis had already been ramping production in recent months, and after factoring in the 1 Mbpd of Libyan oil currently offline, OPEC's spare capacity has already dropped below 2 Mbpd.

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