First Greece, then Ireland, then Tunisia, then Egypt, then Libya, then Japan, and now… Bahrain? The island nation saw severe protests yesterday, which caused the price of WTI to rally in intra-day trading. But as with the other countries listed, how important is Bahrain?
From a fundamental perspective, the impact seems muted. Bahrain has seen a long term structural decline in crude oil production, from 48 Mbbls/d in 1980 to 42 Mbbls/d by 1990, 38 Mbbls/d in 2000 and just 35 Mbbls/d in 2009. On the other hand, consumption of refined products (and direct combustion of crude) has taken the opposite trend, rising from 16 Mbbls/d in 1980 to 23 Mbbls/d in 2000 and 45 Mbbls/d in 2009.
In turn the country’s net crude oil exports have fallen from 41 Mbbls/d in 1980 to just 3.44 Mbbls/d in 2009. That registers as a tiny 0.02% of the Middle East’s total ~19.22 MMbbls/d of exports. The bottom line is that even if all of Bahrain’s production and exports shut down, it would account for a loss of 3.44 Mbbls/d. In comparison, Japanese refinery shutdowns are somewhere in the region of 1,400 Mbbls/d. Put simply, analysts at The Schork Reportare not overly concerned about global supply if Bahrain goes offline.
From a qualitative perspective, all eyes were on Bahrain as a synecdoche for the Middle East. As a kingdom close to Saudi Arabia, with a minority Sunni monarchy ruling over a large number of Shiite’s, its composition is closer to Saudi than Egypt or Libya. According to the International Monetary Fund’s latest data, GDP per capita on a purchasing power parity basis ranks Bahrain 33rd highest in the world, close to Saudi Arabia, which is 39th and Oman which is 34th. On the other hand, Libya is much lower at 57th while Tunisia is 82nd and Egypt is at 103rd.
If protestors can shut down Egypt or Tunisia, it does not say a lot about shutting down Saudi Arabia or Qatar. If protestors can shut down Bahrain, it raises significant concerns about Saudi, due to the similarity in demographics.
This was likely why the Bahraini and Saudi governments made a significant display of aggression yesterday. Bahraini troops fired on protestors, while Saudi military forces moved in to Bahrain. It is not yet known whether Bahrain asked for the support or if the troops were there on Riyadh’s behest. Either way, Saudi has demonstrated it will not stand for any level of upheaval (consider the complete no-show of Fridays ‘Day of Rage’ protests).
We are not overly concerned with Bahrain’s production/export facilities and the markets seem to agree—prices rallied off their lows when the news broke but soon fell back below the 100.00 mark. Instead, analysts at The Schork Reportare looking at how surrounding nations react to the protests. Right now, the chances of contagion seem slim, thus we are more concerned with the bearish demand destruction in Japan than bullish supply concerns in the Middle East.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.