The world oil market is primed for unprecedented panic if a war breaks out in the Persian Gulf, but experts and officials nevertheless remain confident that supplies remain plentiful.
Early in a shooting conflict, forecasters expect prices to be very volatile, with some suggesting that they could soar temporarily to more than $100 per barrel until the condition of oil facilities in the gulf becomes clear.
Despite the various news developments that have moved the oil futures markets in recent weeks, however, what remains unchanged is the high level of world oil stocks, and the brake on demand caused by high prices and slower world economic growth.
The Paris-based International Energy Agency (IEA) said in its January oil-market report that oil stocks held by companies and governments in industrialized countries were equal to 96 days of consumption at Jan. 1, or more than 3 billion barrels. This is close to the peak levels reached in 1981.
In the fourth quarter of 1990, the IEA estimated that oil demand in the industrialized world fell 1.2 million barrels per day, to 38.1 million barrels, from the fourth quarter of 1989.
The IEA yesterday outlined the emergency measures it would take in the event of a shortage caused by war. The body, which is authorized to manage the energy policies of major industrial nations in times of crisis, said it would apply measures that could account for 2.5 million barrels of oil per day.
Those include the release of strategic stocks, demand restraint and other measures, the IEA said.
Since the gulf crisis began, OPEC production has surged to more than 23.5 million barrels per day -- more than enough to make up for the loss of embargoed Kuwaiti and Iraqi oil.
In addition to these factors, there is a growing belief that Iraq's ability to damage the active oil installations of the Middle East may be limited. Saudi Arabia and Iran have built large floating stockpiles of crude near consuming markets to enable some continuation of supply in the event of a disruption to the flow from the gulf.
Charles DiBona, president of the American Petroleum Institute, the oil industry trade association, said yesterday that he doubted that any damage to Saudi Arabian oil facilities would be severe enough to sharply curtail crude production.
"Saudi facilities are quite hard," DiBona said of the ability of Saudi facilities to withstand an attack. He also noted that production and refining operations have "a lot of redundancy," which would allow Saudi Arabia to switch to alternative pipelines, production sites and other facilities to keep oil flowing.
Saudi Arabia possesses a vast array of spare parts and equipment that also would allow it to repair any war damage rapidly, DiBona said.
DiBona noted that while the Energy Department has tried to analyze the impact of a U.S. supply disruption of up to 2.5 million barrels per day due to a gulf war, the Strategic Petroleum Reserve, now standing at 600 million barrels, is capable of supplying up to 3.5 million barrels per day for many weeks.
Japan and Germany also have sizable oil stocks and probably would coordinate a release of their strategic reserves with the United States if a cutoff of Middle East oil occurred.
A sudden surge in demand for oil products in the outbreak of a war likely would be confined to jet and diesel fuel, DiBona said, with the surge in demand for jet fuel about doubling that for diesel.
But DiBona said he doubted that the demand surge would disrupt supplies in the United States. He noted that worldwide supplies of jet fuel are far in excess of any projections for war needs, and that most of the jet fuel being used for gulf operations is being refined in Saudi Arabia, which probably means that little U.S.-refined product will be needed.
One of the reasons for ample supplies is that demand for petroleum products has been weak. The API said yesterday in its monthly statistical report that demand in the United States fell in 1990 for the first time in seven years and domestic crude oil production reached its lowest level since 1961.
The API blamed the fall-off in product deliveries on higher crude and product prices following the Iraqi invasion of Kuwait on Aug. 2, the slowing economy and mild weather in both the first and fourth quarters of 1990. For the year, deliveries of petroleum products declined 2.1 percent, the API report said.
The fall in U.S. crude oil output in 1990 was steep at 5.1 percent, or 389,000 barrels per day. The crude output rate of 7.2 million barrels per day would have been lower had Alaskan output not increased in October.