posted on Nov, 25 2014 @ 07:17 PM
Well, looking back at history, the 1979 oil crisis resulted in a drop of only 4% of total supply but prices rose from $15.85/bbl to $39.50/bbl, a 149%
increase. So a drop of 2.62% in magnitude would have a significant impact on prices. Key factors to consider, however when comparing 1979 to
1. Virtually everything is much more energy efficient than they are now, reducing the economic cost of an oil price spike. Also, reliance on oil for
power generation and heating has dropped drastically. (Good)
2. In 1979, developing countries like China and India were far poorer than they are now and consumed a small amount of oil, in fact China exported oil
during this timeframe. (Bad+)
3. There were price controls still in place on US oil that were repealed after the crisis to stimulate domestic production. At elevated prices,
production of unconventional and marginal sources is profitable (see US shale oil/Canadian tar sands/Venezuelan tar sands). (Good+)
4. The commodities markets are extremely deregulated now; in 1979, there were much stricter regulations that reduced speculation in the markets.
Today, they're awash in speculation and derivatives that have produced wild price swings (see natural gas in 2005, oil in 2008) including examples
such as Goldman Sachs buying oil and storing it in barges just to drive up the price. (Bad++)
So, overall, I would say the impact will be negative but not as severe as that in 1979, although a spike in price of 50% would not be surprising.
Wildcards would be whether Saudi Arabia can increase its production to its theoretical maximum to meet demand (which I doubt) as well as increased oil
production from US/Canada, releases from the SPR, and so on. Of course, rationing could be an extreme method of dealing with the situation.
Also note that Nigeria's oil production is already depressed due to the insurgency in the Niger Delta so it's already operating at reduced capacity.