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Why oil prices will remain high

Craig R. Smith

WND author and columnist Craig R. Smith will be a guest on CNBC “Morning Call” today at 11 a.m., ET, to discuss where the price of oil is going – up or down.

In an exclusive pre-show interview, Smith told WND there are four major reasons why he thinks oil price will remain high this year, and perhaps in 2007 as well.

1. WE ARE AT WAR – both in Iraq and the global war on terror. These wars are being fought on a front that is tightly connected to a region where a great portion of the world’s oil supply resides.

The terrorists have not called off their jihad and still stand ready to attack Saudi oil pipelines and/or infrastructure at a moments notice, not to mention the problems they create in Iraq and Afghanistan.

Iraq oil is important. At this point, with world production almost equal to world consumption, any disruption in supply will send prices much higher.

China is putting 1,000 new cars on the road daily and their consumption is not going to drop. With perceived limited supplies and increasing demand, how can anyone make a sound argument for lower prices?

2. IRAN’S DEADLINE IS LOOMING – Tehran has until August 22nd to answer the world’s demand to stop their pursuit of nuclear weapons. They know well the impact that restricting their oil output would have on current markets.

In 1979 and 1980, Iran threatened to attack the Straits of Hormuz where large amounts of oil flow daily. Tanker transportation rates would explode upward if that threat materialized today and those costs were passed on to everyone.

3. WE’RE IN THE MIDDLE OF HURRICANE SEASON – So far so good, but any major storm would reek havoc on the oil market, given we have yet to fully recover from the damage of Katrina and Rita.

Utilization rates at the refineries are now running at 91.6 percent. With the increased temperatures of refining summer blends and scheduled maintenances, any single disruption could send refined products through the roof – regardless of the crude oil price. Any business running at 91.6 percent can be expected to experience breakdowns.

4. NIGERIA – While quiet at the moment, Lagos has been known to have daily and weekly political uncertainty that affects oil prices. One simple coup attempt or another oil-worker killing could cause disruptions that will drive prices upward.

“I see no reason whatsoever to be optimistic that the price of oil will fall given all the tensions that exist in areas that produce oil,” said Smith. “Hurricanes will come, it’s just a question of how bad they will be.

“Terrorist could strike at the oil-supply line at any moment. To think that oil will be in the $60 range by end of the year is wishful and misplaced thinking. I think the argument for oil at $80-85 per barrel is far more likely given the uncertainty in the world and the continued increases on the consumption side.”

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