News Analysis
Oil rose to $135 a barrel on Tuesday 10/6/08, reversing some of the previous session’s heavy $4 drop, but the market could stay under downward pressure as the U.S. dollar strengthens. The market also expects U.S. gasoline stocks to rise, while watching developments following Saudi Arabia’s plan to call a meeting between producers and consumers to discuss soaring crude prices, which have gained more than 40 percent so far this year. U.S. light crude for July delivery rose 65 cents a barrel to $135 by 0254 GMT, having settled down $4.19 at $134.35 on Monday.
On previous week, oil logged its biggest one-day gain, of $10.75, to hit a record above $139 a barrel.
London Brent crude rose 52 cents to $134.43. The dollar jumped to a 3-month high against the yen on Tuesday after U.S. Federal Reserve Chairman Ben Bernanke said the recent rise in oil prices was adding to inflation risks, stoking expectations for interest rate hikes this year. It was stated that the Bush administration was “focused” on both the dollar and oil prices.
>>What is the driving force behind the increasingly high oil prices?
Oil prices have hit a record high at $100 a barrel
Oil prices surged higher in Asian trade today with OPEC expected to stick to its production levels. In early morning trade, New York’s main contract, light sweet crude for April delivery rose 19 cents to $99.71 a barrel from $99.52 in late US trades on Tuesday 4th of March climbing to $101/barrel closing at $99.92
Fact: Prices have doubled from the rates seen in January 2007 and more than quadrupled since 2002. Why?
What are the likely consequences for the global economy as the world is settling into a recession?
What is causing the high prices?
Violence in Nigeria (Niger Delta), Iraq War, Venezuela Crisis with Oil conglomorates and the US, OPEC’s inability to do anything.
- Some feel the assassination of the former Pakistani Prime Minister Benazir Bhutto increased oil prices because stability in Pakistan is important to US policy in the Middle East.
- Threats to oil workers and facilities in Nigeria have cast a long-term shadow over oil supplies from the world’s eighth largest oil exporter.
- Sustained militant attacks in Port Harcourt raises concern for further disruptions in shipments.
- The weak dollar?
- China’s ever increasing demand.
Is demand for oil continuing to soar?
Some say Yes. Demand is at an all-time high, fuelled by the continued breakneck economic expansion of the Indian and Chinese economies. With more than a billion people in each country, and both economies growing fast, manufacturers and consumers are sucking in energy at an ever-increasing rate. China’s booming economy is sucking in a huge amount of oil. China overtook Japan as the world’s second-largest consumer of oil in 2003 and is closing in on the US, with demand for oil growing at about 15% a year. Analysts worry global demand for oil is so intense that supplies may not keep pace. Demand will rise by an average of 2.2 million barrels a day next year, the International Energy Agency says, compared with the 1.5 million-barrel rise seen in 2007. It says annual demand will rise 2% up to 2012, while other projections suggest demand could soar from about 90 million barrels a day to as much as 140 million over 25 years.
What is Opec doing about the situation?
As the leading oil supplier in the world, producers’ cartel Opec is under constant pressure to do something about the price bubble. It recently bowed to pressure to pump more oil, agreeing to raise its production quotas by 500,000 barrels a day from 1 November. Reports suggest the move was forced through by Saudi Arabia and that few other Opec members either have much stomach for increasing output or much capacity to spare. Opec has said the market is “very well supplied” with crude and will continue to be so in the immediate future. It has blamed speculation by market traders - who can make money by betting on the future direction of prices - for the continuing price rises. Critics of Opec say it must act more aggressively to bring prices down.
Who are the winners and losers from costly oil?
Losers:
US
Consumers and businesses
Winners:
ExxonMobil and BP are having a wonderful time,
Oil rich countries if they are not at war. such as: Venezuela, allowing Chavez to pay for extensive social programmes.
Russia’s oil and gas bonanza has underwritten efforts by President Vladimir Putin to exert state control over the country’s energy sector.
Libya, now becoming a major force in Africa.
Ghana, Just starting out.
Where will prices head next?
Many people scoffed when analysts from investment bank Goldman Sachs said in 2005 that prices could eventually top $100 a barrel. “All of the factors that pushed us above $80 are now moving us higher,” said Peter Beutel at Cameron Hanover in Connecticut. “Until we get more supply or demand starts to take a hit, there is no reason we can’t see any number.”
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Wed, 5th March>> Nigeria’s oil minister said on Wednesday 5th March, he was uncomfortable with an oil price above $100 a barrel and anything above $80 was high, although he thought OPEC should keep output steady for now. Nigerian Minister of State for Oil Odein Ajumogobia said the main factor pushing prices higher was the weakness of the U.S. dollar. OPEC’s President Chakib Khelil said there was no problem with supply and demand.
Source: Nigeria2day
>>> RUSSIA: A gas cartel similar to the Organisation of Petroleum Exporting Countries (OPEC) could form as soon as June, Russian daily newspaper Kommersant reported.
A meeting of the Gas Exporting Countries Forum will take place in Moscow that month and could pave the way for the organisation to become a cartel, with a charter akin to that of OPEC. Among its members would be Algeria, Bolivia, Brunei, Egypt, Equatorial Guinea, Indonesia, Iran, Libya, Malaysia, Nigeria, Oman, Qatar, Russia, Trinidad and Tobago, the United Arab Emirates and Venezuela, if all current forum members sign up. Norway has been a keen observer of the gas forum in the past, while Turkmenistan has taken part in some meetings of the group, which was first formed in 2001.
At present the forum does nothing more than act as a go between for producers, consumers, governments and others energy sector bodies. If the Iran-spearheaded change goes ahead, then it would grasp control of supply and pricing. Both the European Union and the United States will strongly oppose such a cartel, with the possibility that political repercussions could be threatened.
The exact date of the June meeting has not been set, but members agreed to the month when they met in Cairo earlier this week.
source: www.energycurrent.com
