How $200 Oil Can Become a Reality
Lori Ann LaRocco conducts the following interview:
The unrest in Libya sparked the 9% spike in black gold (NYSEArca:USO) today and the unrest is spreading. $100 oil is nothing new to the energy markets but the fact that the turmoil contaigon has picked up steam, just how high can oil go? I decided to speak with David Wyss, Chief Economist at Standard & Poor’s (NYSEArca:SPY).
LL: Price of crude is spiking and although we are no stranger to $100 a barrel plus oil, the U.S. Economy and the world economy is still fragile. How much of a burden could this have on the U.S. and global economy?
DW: I don’t think $100 will break the global and U.S. economy. One hundred dollars is certainly painful, lower is better when it comes to oil prices, but if it gets up to $125, $150 dollars a barrel then I start to get worried. We were at $148 back in 2008 and I think that was one of the factors that created that recession so if we get back to that neighborhood I’ll get worried about the recession reappearing.
LL: Given the unrest in Libya, how high do you think the price of oil will go?
DW: You tell me. It depends on what happens in the Middle East. I don’t think Libya would put it that high but if anything happens in Saudi Arabia, or if Iran cuts off the Strait of Hormuz we could easily be talking $200 not just $148
LL: Are you worried about the unrest spreading?
DW: It is happening right now. Question is just how far does it spread. It is already happening in Bahrain, if it starts spreading to the Qatar or the Emeritus or obviously Saudi Arabia than it gets very scary. You’ve see some unrest in Iran too, they have cracked down extremely hard and they’re not worried about killing off their citizens like some of the others are. I don’t think it will spread but you can not be sure. You can’t be sure of anything right now. You are even seeing unrest in China (NYSEArca:FXI).
LL: What are you telling clients?
DW: This is a major risk factor. The odds it will not be a major disruption but there is a significant possibility there will be a major disruption in oil supplies.
LL: When you say significant, can you give a percentage?
DW: There is a whole range of possibility. If this gets to the Persian Gulf you could easily be talking about $200 oil.
Lori Ann LaRocco is a Senior Talent Producer at CNBC, and author of “Thriving in the New Economy:Lessons from Today’s Top Business Minds.”
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