Link -- http://www.theaustralian.com.au/finance/4121956.htm

Effect of Y2K on oil trade feared

By IAN HENDERSON

9aug99

FEARS about the millennium bug could destabilise global commodity markets in coming months, disrupting shipments of grains and leading to supply-demand gaps and price hikes for crude oil.

The warning comes in the latest World Bank Global Commodities Report, released on Friday in Washington.

"Concerns over the potential disruptions associated with Y2K may cause consumers, processors and distributors to stockpile crude oil and products," the World Bank says.

It adds that this could lead to price pressures as key northern hemisphere economies enter the winter season of peak demand for energy.

But with the Y2K deadline now less than five months away, even rapidly managed stockpiling measures intended to avoid any last-minute hitches could run into trouble.

"A shortage of ocean tankers may develop if importers rush to beat the end-of-the-year concerns over Y2K and this could contribute to the potential for price volatility," according to the bank.

Its commodities update is generally mildly bullish about the near future, saying many prices are strengthening as stockpiles are run down and much of the world economy begins to pick up pace.

However, further falls are forecast in agricultural product prices, with stockpiles of rural goods still high and with supply likely to be boosted following another large harvest.

While some crisis-stricken economies are on the mend  including those of Brazil, Russia and, to an unexpected extent, parts of Asia  the World Bank notes that risks remain to the global outlook.

Japan's recovery "is very uncertain", Europe's "is still very hesitant" and a stock market correction in North America and Europe "is possible".

But overshadowing those concerns is a fear of the unknown: the possible impact of the millennium bug.

Consumers might attempt to store in advance of the start of the year 2000 such basic staples as food and fuel. If they do, that could trigger price hikes.

On the other hand, producers could attempt to pre-empt their worries by rushing greater supplies on to the market, thereby easing price pressures.

Either way, the bank says, energy appears to be the commodity most vulnerable to the bug.

For one thing, peak demand is in the winter, and the forecast rise in demand will come just as OPEC's production cuts take effect.

For another thing, the bank notes that "oil production is the most technology-intensive of major commodities".

"Embedded microchips used for production, transportation, refining and distribution leave energy vulnerable to disruption."

A further spinoff of Y2K fears could be disruptions to shipping which force traders to place a high priority on getting high-value goods to market, even if that means pushing low-value commodities off the boats.

Grains and tropical timbers could be left on the wharves, while manufactured products took priority, the World Bank report suggests.

-- (gasoline@nd.petrol), August 08, 1999

Answers

I'm expecting severe gasoline and oil shortages before Y2K.

Got petroleum distillates?

-- Randolph (dinosaur@williams-net.com), August 08, 1999.

If THE BANK can suspend my ability to get my own money out, then why doesn't "IT" suspend the ability of suppliers to gouge me!!!

I'm gettin' that 70's de ja vu feelin'.......

-- Michael (mikeymac@uswest.net), August 09, 1999.

Yeah, now who's panicking? Sounds like what Clinton and company are afraid WE were going to do. Is he going to send warships to intercept shipments so those bad bad corporations don't (gasp) HOARD stuff? This is all getting very interesting.

-- Jeremiah Jetson (laterthan@uthink.y2k), August 09, 1999.

On the positive side, the increase in price due to supply side shortages allows an efficient reallocation of resources within the marketplace. For example, "discretionary" use of petroluem like the proverbial Sunday drive will decrease. A price increase also makes alternatives (like solar, wind, geothermal, etc.) more attractive. As many forms of alternative power are less environmentally damaging, an increase in petroleum prices may have a positive net impact on the environment.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 09, 1999.

Grains and tropical timbers could be left on the wharves, while manufactured products took priority, the World Bank report suggests.

Donchaluvit? Grains... grains?,,,, grains! fergawdsake are going to be left on the wharf. So we can still get our Ninetendo and Sega Games?

Hell, we don't need no stinkin equitable food distribution anyway. Let'em starve, their furriners anyway,,,, heathens, and they smell funny. If they wuz a democracy they wouldn't be in this position!

-- Mitchell Barnes (spanda@inreach.com), August 09, 1999.

In order to take financial advantage of the potentially obvious price spike you need to buy your fuel oil options today for expiration in Oct. Nov.

-- David Butts (dciinc@aol.com), August 09, 1999.

Decker commented:

"On the positive side, the increase in price due to supply side shortages allows an efficient reallocation of resources within the marketplace. For example, "discretionary" use of petroluem like the proverbial Sunday drive will decrease. A price increase also makes alternatives (like solar, wind, geothermal, etc.) more attractive. As many forms of alternative power are less environmentally damaging, an increase in petroleum prices may have a positive net impact on the environment. "

Decker, tell that to the average Joe Six Pack as he discovers a larger chunk of his take home pay goes to higher oil prices!!

Ray

-- Ray (ray@totacc.com), August 09, 1999.

You can find the original article from the World Bank at http://www.worldbank.org/prospects/gcmonline/index.htm

-- meg moss (meg@giglobal.com), August 10, 1999.

Odd phrasing, though, in their report.

It mentions specific things (like stockpiling - See below) in fourth quarter 99), also shipping, and priorities for other (higher-priced) freight. These are concerns, but the extraction, transportation, refining, distribution, and marketing to final user of oil and chemical goods is more threatened as a whole, than these minor parts of that system. The situation appears worse the less progress is made overseas in basic infrastructure systems.

< It adds that this could lead to price pressures as key northern hemisphere economies enter the winter season of peak demand for energy. >>

The overall threat is mentioned by the World Bank - but not emphasized. It gives an unreal - ominous forcast - as if somebody said in 1972, "Watch out there's this group called OPEC that wants to raise prices worldwide - but they've neverdone that before - and we still produce most of our oil so here's my report - and its only looking at the future prices in the fields in CA, OK, TX, and LA. The report then details minor problems in Houston and Calgary.

-- Robert A. Cook, PE (Kennesaw, GA) (cook.r@csaatl.com), August 10, 1999.