Español








Very usefull links



Petroleumworld
Bookstore



Institutional
links


OPEC



 


Petroleumworld
Business Partners

 


IRAQ OIL THE FORUM


Blogspots
recomended

caracas chronicles

Gustavo Coronel

Iran Watch.org

Venezuela Today

Le Blog des
Energies Nouvelles

 

 

Lagniappe

Rowena Mason: Why is the oil price still so high?

 

Four months ago, the world's energy watchdog took historic action to reduce oil prices. Since then, the financial outlook has considerably worsened and some Libyan oil has returned to the market. But the price has remained above $100 a barrel.

Releasing 60m barrels of reserves was meant to dampen the high price of $113 per barrel, attributed to lost ouput from war-torn Libya and worries that the Arab Spring could spread to more oil producers.

The International Energy Agency (IEA) made no secret of the fact it was worried that oil above $100 was unsustainable and damaging to the global economy.

Since then, the world's financial outlook has considerably worsened and about 430,000 barrels of Libyan oil have returned to the market.

Surely, amid the doom and gloom, plus extra production, the natural direction of oil ought to be down?

However, the price, though volatile, has remained stubbornly above the $100 level. And last Monday, Brent crude even returned to the $113 per barrel level seen before the emergency release of supplies.

Data on oil speculation also shows that more traders are betting on higher prices. At the end of last week, data from the US Commodities and Futures Trading Commission (CFTC) showed an increase in long positions in oil futures.

From a macro viewpoint, such continued support for oil doesn't appear to make sense given the number of predictions that the world is on the brink of another recession, tipped over the edge by a volatile eurozone.

From America to Europe, countries are struggling with sovereign debt. And even China is not immune, with demand for oil at its lowest level so far this year.

There is no doubt that the pace of consumption is slowing. Opec, the cartel of producers, the IEA, the Energy Information Agency and numerous companies all say the economic downturn is taking its toll on world oil demand.

This leaves the most plausible explanation for such high prices as tight supply, counteracting the economic gloom.

According to Bank of America Merrill Lynch, the extra culprits on top of Libya's lower output are North Sea maintenance and pipeline attacks in Nigeria.

Its analysts refer to "a string of supply shocks affecting Libyan, North Sea and Nigerian light sweet barrels. Some of the recent supply losses may reverse in the next few months, but only a global double-dip recession will be able to remove medium-term tightness in the seaborne crude oil markets."

Angola, a recent addition to the Opec cartel, has not been producing anywhere near the 1.85m barrels it pumped last year, with technical problems at some fields.

And Adam Sieminski of Deutsche Bank also mentions "slower than expected ramp-up of new production and unplanned outages" from non-Opec producers.

There is a similar picture in America, where stockpiles of its benchmark WTI crude are remarkably low. This has turned out to be a function of lower imports rather than increased consumption.

While supply remains problematic, only one thing is going to cause a collapse in prices even lower demand in the face of a full blown economic crisis. It appears that the market is not pricing this in just yet.

Commerzbank, for example, says: "One reason for the striking resilience of the oil price could be that a package of measures to resolve the European Union debt crisis is now expected next Wednesday. We still see potential for disappointment if the big push does not succeed." In other words, the oil market is still holding out for a solution to Europe's debt woes.

Ole Hanson, strategist at Saxo Bank, thinks that the market is now at a crunch point, ready to go either way.

He says: "WTI and Brent crude also reached but failed to breach important resistance levels indicating that a prolonged period of range trading can be expected while we wait for further clues about the future demand situation."

It's a catch-22 situation for motorists suffering a UK petrol price just 3p per litre off its record high.

For the moment, lower oil prices are only going to come at the expense of lower growth and nobody's rooting for a recession.

RELATED ARTICLES

 

Follow us and post your comments: in Twitter Facebook

 

 

Rowena Mason writes about energy for the Daily and Sunday Telegraph. Contact her at rowena.mason@telegraph.co.uk or follow her on Twitter @rowenamason. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was first published by The Telegraph. Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld,

Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated
.

Petroleumworld News 10/25/2011

Follow us in Twitter

And post your comments in our Facebook site


Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!

We invite all our readers to share with us their views and
comments about this article, write to editor@petroleumworld.com

Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors

Send this story to a friend Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x
600 pixels

.


TOP


Editor:Elio Ohep /
Contact Email: editor@petroleumworld.com

Contact:
editor@petroleumworld.com/ phone: Office (58 212) 635 7252,
or Cel (58 412) 996 3730 or
(58  412) 952 5301


CopyRight © 1999-2010, Elio Ohep - All Rights Reserved. Legal Information

- CCS Office Tele
phone/Teléfonos Oficina: (58 212) 635 7252

PW in Top 100 Energy Sites


Technorati Profile

Fair use notice of copyrighted material:

Legal Information

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.