Good news on Oil Prices

Reuters:

Oil prices fell sharply on Wednesday after the head of producer group OPEC said the market was oversupplied, outweighing worries that powerful Hurricane Ivan could disrupt U.S. offshore oil and gas production in the coming days. U.S. light crude fell 71 cents to $42.60 a barrel on speculative fund selling, bringing prices down nearly $7 from August's all-time peak of $49.40. London's Brent crude fell 56 cents to $40.20 a barrel. The selloff came after OPEC President Purnomo Yusgiantoro estimated the global oil market had a crude oil oversupply of 1.5 million barrels per day (bpd), and said that oil prices should be closer to the $30 a barrel range. "What we see is the political premium between $10 and $15 per barrel," Purnomo, who is also oil minister for Indonesia, said at the World Energy Congress in Sydney. "If you remove the non-fundamentals, then we hope the price will go down to a level of $30 per barrel." OPEC, which controls about half of global crude exports, will meet on Sept. 15 in Vienna. The group's biggest producer, Saudi Arabia, has said it has been pumping oil at 9.3 million bpd, well in excess of its official quota of 8.45 million bpd, and has another 1.3 million bpd of unused capacity.

I had seen some analysts argue that there was not a lot of excess capacity for more production. This seems to agrue against that and that is a very good sign. One question I have is how vulnerable is the oil supply to terrorism. Terrorists in Iraq have succeeded in causing short-term disruptions of the oil supply there. So far no attacks in Saudi Arabia have succeeded in disrupting production at all although attacks against foreign nations there may have a negative influence on future production as further expansions of the oil fields may be delayed due to lack of key personnel. So far though I think such an effect will be minimal. I wonder though, what some of the worst case scenarios are (well, semi-worst case anyway.) How much of an effect could a single attack have on Saudi exports and how difficult would that be to accomplish? I understand why we don't know that, no reason to do the terrorist's research for them, but it is an unknown to me at least and makes if difficult to analyze whether the terror premium on oil prices is realistic or widely overblown. It is also worth remembering that political troubles with Russia's Yukos and in Venezuela contribute to this political premium and that it is not all terror related.