Crude Oil / Gas Prices Are High and Volatile

October 26th, 2007 at 11:31am Under Crude oil+ Historical oil prices+ 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.

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