"Oil production in Libya is expected to shut down completely and could be lost for a prolonged period of time, Bank of America Merrill Lynch said on Thursday.
"We expect Libyan production to be shut down completely and we might lose sweet crudes from Libya for a prolonged period of time," Bank of America Merrill Lynch analyst Sabine Schels told Reuters.
Schels said that the world faced the prospect of real supply shock in which the loss of 1.6 million barrels per day of sweet oil could potentially trigger a steep rise in prices and force a sharp reduction in demand to balance the system."
Brace yourselves! This means $4.25-$4.50 a gallon for gas, and probably in a relatively short time period. Your family budget is about to take a massive hit as the cost of not only your gasoline but everything else you buy jumps. And this doesn't even count the other price jumps in commodities like corn and cotton that have taken place over the last few months.
Saudi Arabia is saying that they'll make it up. That remains to be seen. Assuming that the Royal Family isn't taken out in a revolution, there has long been talk that Saudi has greatly exaggerated their reserves for a number of reasons and that they really don't have the excess capacity they've so long bragged about. Also, their oil isn't of the same quality as the Libyan oil. It's harder to refine into gasoline.
From what I listened to on Fox Business the other day it appears that Libya's oil goes to Europe where it's refined into gas. Some of that is shipped to America. Some of our oil is refined into diesel, because it's a lower quality oil, and shipped to Europe. Apparently, this European gas supplies the East Coast so look for the price run up to hit there first.
Here in the St. Louis area we're fortunate to be right across the river from the refineries at Wood River, Illinois. We've got oil pipelines running underground all over the place. I don't know exactly what the finished product is but they must be making at least some gasoline because our prices are generally a bit lower than most other places, probably due to transportation costs.
But what's a few pennies when we're talking $4 or more a gallon.
If Saudi goes down analysts are predicting oil at $220 a barrel, roughly $10 a gallon for gas. Uprisings are already scheduled (all by themselves with no one in the background manipulating anything. Weird, huh?) in just a couple weeks. Bahrain, is close to collapse which will mean that we lose our docking for the Fifth Fleet and it opens a door to Eastern Saudi Arabia. Most of the discontent in Saudi is on the Eastern side, where most of the oil fields are.
Can you feel a war in the air as we send troops to defend the Royal family and our interests in the region, not to mention our oil supply.
No matter how bad this gets or whether Saudi collapses we're looking at a recession that will slip into depression here in America and probably around the globe. Right now may be the best times any of us see in a long, long time.
Pray, pray, pray. And prepare.