Pimco warned investors that any military action against Iran over its nuclear program could lead to sudden "all-time high" oil prices.
Greg Sharenow, portfolio manager at the group, said markets are more vulnerable to significant price spikes should a new supply disruption occur than during the 1990 Iraqi invasion of Kuwait or the 1980 Iraqi imposed war on Iran.
The price of Brent crude oil already hit year-to-date highs of more than $120 per barrel in April before falling to roughly $100 by October. However, in October and November it gained roughly 8 per cent and as at December 1 was up to $110.
Sharenow said in a note, "Any event could pose a formidable risk to the global economy, e.g. a real supply disruption scenario would require higher prices to lower demand in order to balance the market. This could come at a time when the global economy, or at least the developed world, is facing fiscal headwinds and limits on monetary policy."
The manager said he was also concerned about supply disruption as there is currently less of a surplus than normal, with inventories falling below the five-year average for the first time since 2008. "While Saudi Arabia will likely respond by boosting output, we estimate excess capacity is unlikely to be much higher than 1.5m barrels a day," he said.
Sharenow said potential scenarios for an oil price surge range from exports being minimally disrupted, with oil spiking to $130-$140 per barrel, through to Iranian exports being lost for half a year, leading prices to rally and average $150 for the six months with "notable spikes" above that level.
Yet, market analysts and traders are seeing a shocking $200 to $300 per barrel for first few weeks of military action against Iran and a complete disruption of Iranian oil.
Robert Jukes, global strategist for Collins Stewart Wealth Management, said he was focusing more on the macroeconomic environment, including the ongoing debt crisis in Europe.
He said, "Ultimately short term spikes are possible as the situation is volatile and the oil price has been bubbling up on these tensions. But the bigger picture is the macro backdrop, which is deflationary."
Monday, December 05, 2011
"Analysts Warn of Astronomical Prices for Oil if West Takes Action against Iran" (Fars News-Iran)
This doesn't seem to have actually been produced by Fars News. It looks as if they just lifted it from somewhere: