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There’s no oil in Israel or Lebanon, but Iran is the wild card. (http://www.msnbc.msn.com/id/13864423/from/RS.2/)

Anne Thompson - NBC News - July 14, 2006

http://www.cleanmpg.com/photos/data/501/3_00_Plus_Gasoline.jpg
$3.00 + is now the new norm. $4.00 + in the wings?

NEW YORK - If you think $3 gas is bad, what about $4? Analysts say it could be just around the corner because of the fighting in the Middle East.

"If it goes bad, we could be talking $4, $4.50, maybe even $5," says Phil Flynn, an oil analyst with Alaron Trading Corp.

Not because Israel or Lebanon has oil, but because Iran, the world's fourth-largest producer, supports Hezbollah's battle against Israel.

"This is also a proxy war between Israel and Iran to some extent," says Daniel Yergin, CNBC's global energy analyst, "and it's a demonstration of what could happen if sanctions or a confrontation with Iran over its nuclear program gets worse. This demonstrates the kind of trouble that Iran can cause."

The fear is Iran could pull its 2 million barrels a day from the world market.

"If that oil is taken off the market, we are basically going to start seeing our world inventory start to shrink overnight," says Flynn.

And prices would go even higher, because there is little spare capacity.

Oil makes up about half the cost of a gallon of gas, and at these prices, the pain is now going beyond the pump.

All the way to the bunny shampoo and bird seed Ruth Hanessian sells at her Maryland pet shop. So she's raising prices.

"I can see when I have 50 percent of my prices going up on one invoice, that it's already having an effect when we're slightly over $3 a gallon," she says.

All the increases are based on fear - without a hurricane or other major event that really squeezes the world's oil supply.

Yes, if the conflict continues it would be very tempting for Iran to jump in. :(

So if global production is 86 million bbd, why is it supposed to be the end of the world if Iran turns off it's 2 million bbd? I realize there is hardly any spare capacity, but still, I would think a jump of $5-15bbl would be more logical. To hit $5/gallon of gas, we'd need $150/bbl oil.

I'm not sure if your math is correct. Remember, a large chunk of the price of gas is taxes.

Last time I saw a listing, it said that about $1.50 of each gallon is due to the cost of crude. This makes sense, considering after refining, you get a total of 45 gallons of product. $70 / 45 = $1.55. Seems close enough. So anyway, at $150 per barrel, $150 / 45 = $3.33, so the cost increased by $1.78. If the current pump cost is $3/gal, add $1.78 to it and you end up with $4.78. Of course, since the final step of transportation is via diesel tanker truck, and diesel fuel will cost more, that's how I arrive at a cost of about $5/gal when oil is $150/barrel.

One barrel of crude = 42 US gallons (159 litres). Your numbers are off slightly but still reasonable. I think we also need to introduce a "fear" factor into the pricing as well. This occurs when speculators bid up the price of crude based on fear as well as supply or lack of it. So $5/gal could come a lot sooner than $150/barrel. IMO.

I said a barrel of crude produces 45 gallons of refined product. Yes, it is 42 gallons of raw oil, but after refining, you end up with 45 gallons of product.

I'm sure your math is correct, but it's really the speculators driving up the cost. They are making the bet that a supply disruption will drive the price of oil that high, (if only briefly so that they can sell off), even if it isn't even close right now. Today's pump price reflects tomorrow's pinch.

And the way I understand it, that 2 million barrels per day doesn't look like much relative to the 86 million total, but it makes a difference when we burn it almost as fast as we pump it out of the ground. Things would probably even up over the long haul, but the short-term shock to the market would be pretty nasty while everybody scrambles to find a way to replace the lost product. Again, the traders only need a short spike to sell off and make their fortune.

Only time will tell, but with the fact that a lot of oil is now coming from more expensive sources, it's unlikely that prices will retreat by much if and when they do come down. Probably $50/bbl is the new floor at this point, below which supply would be reduced as the more expensive sources would hold off until prices rise. As reserves continue to decline, it becomes more and more expensive to get oil, which further raises the floor of oil prices.

I'm encouraged by how far technology has come in the last 10 years however. Although product deliveries haven't really reflected it, we're in a far better place now than we were 10 years ago to dramatically reduce our oil consumption. I would imagine we should have at least another 15-25 years of relative oil price stability, which should be enough time to bring alternate sources of energy and transportation fuel and dramatically more efficient transportation to use these fuels in.