Days of rage at the pump, in Libya, and in Saudi Arabia

Judging by the political developments in Libya and the current price of petroleum, you’d think that Libya was some sort of heavyweight exporter. Last fall West Texas Intermediate (WTI) crude oil was trading at less than $85 per barrel on the spot market. Protests in Libya started in February, and WTI reached $99 per barrel in early March. Granted, Libya isn’t the only country in the region recently shaken by a political disturbance. Protests in Tunisia in December spread to Egypt in January, then Libya in February.

Still, they’re lightweights.

All told, these three countries contributed a whopping 0.8 percent to U.S. crude oil imports in 2009. And that’s just their percentage of imported oil; as a percentage of total U.S. oil consumption, these three supply closer to 0.4 percent. It doesn’t seem to make much sense that the average price for a gallon of gasoline shot up from $2.91 in November to $3.57 in March, does it?

Assuming all exports from Tunisia, Egypt, and Libya stopped, it shouldn’t have much effect on the U.S. at all. We get oil from 90 countries, so it’s not like the supply is restricted or anything like that. Certainly the others would be able to make up the difference. Losing 0.4 percent of the quantity supplied should result in a price increase of about 0.4 percent, shouldn’t it? Even if we rounded up the loss to 1 percent, this means that retail gasoline prices should have risen 1 percent since November, from $2.91 per gallon to $2.94 per gallon. Big deal.

So, what accounts for the other 63 cents per gallon? Probably a mixture of fear and confidence. Oil markets fear instability, and North Africa has cornered the market on political instability lately. Meanwhile many speculators are confident that they can get into the oil business and turn a quick buck. It was mainly speculation that drove oil to nearly $150 per barrel in 2008.

Back to the protests and demonstrations: Whether they will spread to other oil-exporting countries is a big question, and whether they will spread to any significant oil-exporting countries is another. The so-called Day of Rage doesn’t bode well. Some are predicting the price of oil to shoot up to $200 per barrel. If that comes to pass, retail gasoline prices around $3.57 per gallon might not seem so bad.