"Investors trying to understand why oil prices are so high have long been focused on Iran," the Financial Times observed. "But rather than looking at supply disruptions stemming from the Strait of Hormuz, they need to turn their eyes to South Sudan."
Until the Jan. 25 shutdown, South Sudan, which became independent last July 9 after decades of civil war, was producing only 260,000 barrels per day, a mere 0.3 percent of global production last year.
But that tally is deceptive, the Financial Times said.
"South Sudan produces a particular kind of crude sought by Asian importers due to its low sulfur and high waxy content," the newspaper reported.
"The loss could not have come at a worse time as the demand for the African nation's two crude oil export grades -- known as Dar Blend and Nile Blend -- is stronger than ever this year due to power shortages in Japan, which are forcing utilities to burn unrefined crude, and a strong fuel oil market in the Asia-Pacific region.
"The loss of South Sudanese oil has forces China and Japan, traditionally big consumers of the country's oil, to shop elsewhere, pushing up the premiums of the physical market."
Oil prices hit a 6-month high of $120 per barrel Wednesday over concerns that Iranian crude exports may be cut off. Iran is the world's third largest oil exporter after Saudi Arabia and Russia.
With Iran's oil supplies being steadily eroded by U.S. and European economic sanctions, tightening U.N. measures against Tehran over its refusal to abandon its contentious nuclear program, the Chinese have concentrated on seeking alternative crude suppliers. So have the Japanese and Indians.
Iran has threatened to block the strategic Strait of Hormuz, the gateway to the Persian Gulf, thus threatening to cut one-fifth of the world's oil supplies and to cut off supplies to European customers.
But, as with South Sudan, an insignificant producer, political instability in Nigeria, which included an attack on oil facilities in the southern Niger Delta region, and even in Yemen, another minor producer whose output is threatened by political upheaval, has caused global jitters about oil supplies.
Meantime, Libya's production is well below the level of 1.6 million barrels per day it was producing before the uprising against Moammar Gadhafi erupted Feb. 17, 2011, although it's recovering steadily.
Libya's low sulfur crude is also highly prized at refineries in Europe, Libya's main oil customer. That's added to the growing shortage of this category.
China has secured supplies of low-sulfur crude from Angola, Africa's top producer, while Japan has gone to Vietnam for its Su Tu Den crude, adding to the upward pressure on prices.
"The market is bracing for a long-lasting disruption" in South Sudan, the Financial Times noted.
Even if South Sudan and Khartoum do manage to reach an agreement on revenue-sharing following the south's secession, and given the hostility between them that's a distant prospect, it will take weeks to get the pipeline system that carries southern crude northward to the Port Sudan terminal on the Red Sea functioning again.
South Sudan's national oil company says it could restart production in a few days but reinstating the 1,000-mile pipeline is a more complicated process.
"Oil traders involved in South Sudanese crude say the country would need between three and five months to restart production, as at a cost of $300 million," Financial Times Commodities Editor Javier Blas reported Monday.
The International Energy Agency, the Western consumers' watchdog, estimates that South Sudan's pre-shutdown won't recover until the fourth quarter of 2012 at the earliest.
"Traders fear a more lasting disruption, with South Sudan production running at zero for the remainder of the year," Blas reported.
Saudi Arabia, which has pretty much all the spare global production capacity, has said its maximum output is 12.5 million bpd, enough to cover any shortfall. But the IEA said in its latest monthly report for February that the kingdom's maximum output was 11.88 million bpd because of declining oilfield production.
That may not seem much of a difference but it will be if a major supply crisis occurs.