There's no shortage of "what if" scenarios surrounding unrest in the Middle East/North Africa and its effect on oil prices. But amongst all of the speculation there are three potential tipping points worth watching.
Saudi Arabia's spare capacity
The Saudi government said its upped crude output to about 9 million barrels day in response to unrest in Libya that has severely curtailed oil production operations there. Nobuo Tanaka, head of the International Energy Agency, said Wednesday he's confident that Saudi Arabia can provide enough oil to cover any decline in production from Libya, comments that should calm the market a bit. This is really a short-term solution. The more important question is whether there's enough spare capacity to handle a longer, sustained crisis in the Middle East.
It's important to note that 1.) Saudi Arabia's oil field operations are veiled in secrecy, leaving us with an unclear picture of its actual production and spare capacity figures; and 2.) The IEA has predicted oil demand will rise to a record of more than 90 million barrels by the end of this year.
Steve LeVine over at The Oil and the Glory notes that there is reason to believe Saudi Arabia has been quietly producing 9 million barrels a day for some time -- long before Libya problem developed -- to meet domestic electricity demand and for other market factors. If so, there's some question whether Saudi Arabia can produce even more oil than it has been if Libya's oil production remains offline for an extended period of time.
The protests in the tiny island country are being so closely watched for one reason: location, location, location. Bahrain only produces some 40,000 barrels of oil a day. But it's almost entirely surrounded by Saudi Arabia's oil fields. Among them is the Ghawar field, the kingdom's chief producer that cranks out an estimated 5.2 million barrels a day, the FT via JBC Energy noted.
The fear is twofold: unrest in Bahrain will somehow impact Saudi Arabia's oil operations; and more importantly, that the uprising will spill across the 16-mile causeway (check out the satellite image on the right) that links Bahrain and the Saudi kingdom.
Much of the attention has been centered on North African oil-exporting countries like Algeria and Libya. But Nigeria, which is biggest oil producer in Africa, is worth watching as well. The folks over at Barclays Capital noted that Nigeria is scheduled to hold elections in April. A stable Nigeria means uninterrupted oil production, which will be particularly important if unrest in other oil-exporting nations continues over the long term.