“One way or another I’m gonna getcha, I’ll getcha, I’ll getcha getcha getcha getcha.”
A cyclone named Gonu is churning towards the east coast of Oman, right near the entrance to the Persian Gulf. Boy do we love a good Black Swan. And this could be a good one. Global oil prices are up on the chance that the cyclone could hit the southern coast of Iran and disrupt shipping and production of oil in the Gulf. According to statistics from 2003, about 11 million barrels of oil per day make it from the Gulf to the rest of the world.
News reports say it’s been about 60 years sine a cyclone hit the Gulf. That predates the oil boom in the region. The big Saudi oil field in Ghawar was discovered in 1948 and didn’t go into production until 1951. Since then it’s been a nice little earner for the Saudis, pumping an estimated 60 billion barrels of crude for a thirsty world.
Ghawar still pumps out nearly 5 million barrels of oil per day, which is 5% of total demand of 84 million bpd. It’s the Saudi’s cash cow and contains an estimated 50% of total official Saudi reserves of 262 billion barrels (a number that has proved remarkably static since the Saudis first published it years ago.)
A Black Swan, by the way, is the term philosopher Nassim Taleb uses for a low probability, high impact event; they are so named because until Europeans found Black Swans everywhere in Australia, they were considered so rare as to be statistically insignificant. A cyclone impairing or destroying production capacity in the world’s most important oil region certainly qualifies as a Black Swan.
But here’s the thing. As Taleb points out, Black Swans are not as rare in financial markets as today’s modern financial models would suggest. They are more common than you’d expect. And the funny thing is, as the world’s financial markets become more complex and more integrated, Black Swans seem to be taking flight with increasing frequency. Hmm.
Incidentally, we didn’t learn any of those facts about Saudi oil production at the Oil Crash film last night. The film was sold out by the time we got there. As a contrarian, the fact that films on Peak Oil are selling out alarms us. Maybe this whole oil story is over cooked. And then again, maybe not. Uranium prices are skyrocketing in response.
Markets and Money