China stops Oil Price rally

January 11th, 2010 at 10:06am Under Uncategorized

A couple weeks in a row the price of a barrel crude oil rose but last Thursday China made an end to the oil price party. For now at least, due an economic recovery in the offing, analysts expect that the  demand for oil will further increase in the coming months rather than decrease.The Chinese central bank Thursday shook oil investors in oil and woke them up from their dream of ever rising oil prices. The continuing cold weather in Europe and parts of the United States was the main reason of the quick oil price rally in the last couple of weeks. The price of a barrel crude oil rose more than $11 in ten days, leading to a price of around $ 83, the highest in fifteen months.As surprise for many among us the monetary authorities in China broke with the easy and broad policy of lending money to banks. A monetary tightening policy could lead to a lower growth of the Chinese economy and thus a decrease in demand for oil on the long term. These descisions of China, the second largest consumer of oil, had a direct effect on the oil price last week. In New York was the price of a barrel of oil during the first hours trading almost a U.S. dollar per barrel down. Later this drop weakened down to $ 0.45 to $ 83.73. In London the price of oil was also $0.45 back to $81,44.

Fuel for the Economy

In recent years, the Chinese banking system of provided the economy with enough liquidity to fight the economic crisis. Banks were ordered to provide much financial credits to the economic engine to provide sufficient fuel to face the problems of an economic downturn. It succeeded because the growth in Chinese gross domestic product (GDP) has remained a normal level during this period.The central bank, the People’s Bank of China, is clearly done with this broad policy for the banks and so adjusted the policy overnight. Analysts expect the monetary authorities to skim the liquidity of commercial banks by 137 billion yuan ($ 20 billion this week. This is the largest decrease in eleven weeks. ”Lending to the industrial sector is less interesting,” as said by analyst from Barclays Capital. An official interest rate increase is not expected before the second half of this year.

U.S. Dollar

China was not the only factor that lowered oil prices last week. The second factor was the U.S. dollar, which continued its march to an increase of 0.7% against the euro. A stronger dollar makes investing in commodities relatively less attractive.The cause of the dollar increase was due better than expected U.S. economic figures. The number of applications for unemployment benefits rose in the week to January 2nd 1000, while analysts had expected an increase of 7000. Today, new figures on employment in the United States gives a detailed picture of the economic recovery in the world’s largest economy.

Breather

The slight decline in oil prices, is according to some analysts no more than a respite on the way to further increase of the oil price in 2010. ”It is nothing compared to the increases of the past weeks,” said one analyst at the Bloomberg news agency. ”For a couple of days the price can further decrease in performance, but it is only temporarily for the optimists.”

Oil Critics

A rising group of oil critics and traders become convinced that the recent 20% price increase is not justified, given the slowly demand development for oil and oil products in the United States.Oil prices rose sharply from mid December from a level of $ 69 per barrel. The U.S. Energy Information Administration, a part of the Energy Department, stated last week that oil stocks could go down further.According to oil traders Ritterbusch and Associates is an oil price above the level of $ 83 per barrel at this moment indeed a new oil bubble. A sharp fall in oil prices is not excluded, such as when the winter weather in the northern hemisphere begins to depart. A structural demand increase is not seen at this moment.However, due to the cold winter stocks of heating oil will decrease rapidly. Barclays Capital thinks that this could support the oil prices if the winter continues much longer.

By Oilism.com 1 comment

Crude Oil / Gas Prices Are High and Volatile

October 26th, 2007 at 11:31am Under Crude oil+ Oil and gas+ Production levels+ Uncategorized+ energy prices

As history demonstrates, energy prices have typically been high and volatile. Energy prices, particularly crude oil and natural gas can fluctuate by more than 60% from year to year. The past year has certainly been no exception to this volatility.

The average oil barrel price for October 2007 climbed by more than 30% in relation to May 2007.Today, crude oil prices hovering around $91 per barrel about 30% higher than one year ago and 5 years ago it hovered around the $20. That is a 450% raise within 5 years!!These are a direct consequence of a highly crude oil supply-demand curve and today’s drop in the US Dollar. Minor changes in supply or demand, even on the order of just a million barrels per day, can significantly impact the price of crude oil or a couple of cents off the US dollar exchange rates triggers non US countries to buy lot’s of barrels. This increasing demand will be followed by Supply concerns primarily arise from:

• Geopolitical instability. Instabilities in OPEC regions diminish production and raise fears about OPEC’s future ability to safeguard global energy needs. In addition, past movements in Nigeria, Bolivia, and Venezuela for local control of oil supplies have added instability to the marketplace couple of months ago. Nowadays the tensions in Turkey and Iran/Iraq play a big role in the sentiment on the oil market.
• OPEC’s hesitancy to increase daily production levels. Some fear that the Middle East fields have peaked, but others believe that OPEC maintains a tight supply to benefit from high prices.
  
• Crash or drop of the US Dollar to lower levels will impact the demand for oil which can cause a shortage on supplies and reserves.
• Insufficient midstream and downstream infrastructure to deliver increased oil and gas production in a timely manner.
• Natural disasters. Approximately 20% of the Gulf of Mexico’s oil and gas production was offline after Hurricane Katrina’s visit. Since much of this production was marginal, it may never come back online because of cost-prohibitive repairs. Global warming will cause more and more natural disasters in the near future.

Forecast: Oil keeps on Raising

With the continued instability problems in several parts of the world, the near future will likely bring continued high and volatile energy prices. Furthermore, adverse weather conditions caused by global warming and climate changes, experts predict more natural disasters on the magnitude of Katrina over the next several years. This could add several dollars to oil barrel prices. The U.S. Energy Information Administration expects average barrel prices to increase slowely over the next 12 months, yet other groups argue that this statement is too conservative. For example, investment bank Goldman Sachs anticipates a “super spike” in oil prices with potential surges to $105 per barrel. The bank also expects oil prices to remain high through the rest of the decade.

By Oilism.com Add comment