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Energy Expert Schork: Mideast Tensions Might Push Oil Prices to $200 a Barrel

By Forrest Jones and Kathleen Walter   |   Friday, 17 Aug 2012 09:50 AM

Oil prices are climbing thanks to maintenance issues on North Sea rigs, yet escalating tensions in the Middle East could send prices skyrocketing, said commodities research analyst and trader Stephen Schork.

Israel and its western allies have accused Iran of developing a nuclear-weapons program, a charge Tehran denies.

Tensions eased for several months when Iranian officials agreed to talks with delegates from the United States, United Kingdom, China, France, and Russia and Germany to diffuse the standoff.

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However, rising chatter that Iran is still pushing through with its program prompted Israel to test an SMS warning system should Iran strike, which sent prices rising.

An actual attack could send prices soaring, especially if Iran makes good on past threats to close off the Strait of Hormuz, a narrow waterway connecting oil-rich Persian Gulf nations with the rest of the world.

Brent crude, produced in the North Sea and a benchmark for gasoline prices worldwide, is currently trading around $115 a barrel but could almost double in price amid a military conflict.

"So how high can prices go? Right now the Brent market, which is in the North Sea and is the global market for oil right now is at $115-$116. If you get any sort of flare up in the Middle East and God forbid any sort of disruption of oil through the Strait of Hormuz, then literally, the sky is the limit — $150 to $200 oil at least in the near term is not unthinkable on any sort of knee-jerk reaction to tension," Schork told Newsmax.TV in an exclusive interview.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

A gallon of regular gasoline, meanwhile, is averaging $3.71 nationwide, according to the AAA Daily Fuel Gauge Report.

A military conflict in the Middle East could send that figure soaring as well, considering that a $1 move in oil prices generally translates into a $0.02 move in retail gasoline prices in the United States, said Schork.

"Oil at the levels that potentially we are talking about easily pushes gasoline prices here in the United States above the $5 mark," Schork said.
Demand issues, meanwhile, are not driving prices.

If they were, oil would probably cheaper due to cooling global economies.

"Japan is in recession. There are legitimate concerns regarding the health of the Chinese economy, the U.K. is in a severe double-dip recession, Europe, for the most part, is in recession," Schork said.

"The demand issue has been pushed to the back of the envelope. All the concerns right now in the market is related to supply. The concerns of the lack of cargoes coming out of the North Sea and a potential disruption to supply in the Middle East."

Europe has slapped sanctions on Iran that include an embargo on the country's crude, though such a move won't affect prices.

Iran can export its crude to China and India, and will do what it can to sell as much oil as possible to pump in petrodollars.

Meanwhile, supplies are increasing in countries like Iraq and Libya as the two emerge from wars that disrupted production.

"When you look at the loss of Iranian barrels from the market, while it is significant it is really something that can be comprehended in the market. First and foremost, we have to realize Iran has to sell its oil. It is cash deprived," Schork said

"More importantly what we have seen this year is the return of Libyan oil production, which was lost last year because of civil war, production there is near pre-civil war levels. Production out of Iraq now is at levels not seen since before Saddam Hussein. We've seen strong production in both West and East Africa," Schork said.

North Dakota, meanwhile, should be producing more oil than Qatar soon, Schork said.

"Right now you have significant oil production coming out of North America."

Upward pressures on prices could also come from the Federal Reserve, which has said it cannot rule out the use of stimulus tools to jolt the economy, which send oil prices rising.

Since the downturn over four years ago, the Federal Reserve has taken steps to stimulate recovery, including slashing benchmark interest rates to near zero and rolling out unorthodox policies such as quantitative easing.

Under quantitative easing (QE), the Fed buys Treasury holdings and mortgage-backed securities held by banks, pumping the financial system full of liquidity to further drive down interest rates to boost the economy, weakening the dollar in the process.

Oil prices rise when the Fed stimulates, as a weaker dollar sends investors scrambling in search of hard assets like oil and other commodities.
Should the Fed act, as some officials at the U.S. central bank have suggested, expect oil to rise.

"People are going to take those cheap dollars and look to secure hard assets like oil, like gold, like the metals," Schork said.

"So any sort of downturn in the value of the dollar is certainly a bullish driver for oil prices going ahead."

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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