THC, this is an interesting picture, but it has, as usual, opposing sides, here are few examples. If you assume that production of oil will be impacted due to Y2K, you must assume that a portion of its consumption will be impacted by similar problems at least in the industrial uses segment of the economy. Furthermore, on top of the strategic reserve of 563 MM barrels, there are rumors around the oil patch that about 300 MM barrels are unaccounted for in the "balance of oil (oil produced vs oil consumed and total "declared inventories". Some people actually think that all recent advances in oil prices were stunted due to oil coming out of this overhang.
The build up in oil inventories is believed to be due to the drastic reduction in economic activity in the far east and until this source of demand growth reestablish itself, it seems that the balance is in favor of oversupply.
I would presume that most of oil facilities that have come on stream in the last 10 years would be completely Y2k compliant, I have no idea how much of the total this is, but it seems that a lot of these (particularly Kuwait since their infrastructure and wells equipment were rebuilt after the big fires) could increase production rapidly if required. Finally, there is a glut of Iraqi oil that could easily be let go onto the market to smooth supplies interruptions.
If the Y2K problem is really as deeply embedded as feared, then the danger is more general economic slowdown that brings deflationary pressures rather then shortage IMHO. If not, it is quite possible that the two forces balance themselves out.
Zeev |
