End of the epoch of the cheap oil
14:14
A global increase in the demand pushes the market for petroleum [fyuchersov] upward. An increase of the consumption of petroleum products in the USA and China (in the potential and India) and the limited the service lives of raw material write off the epoch of cheap oil. Moreover the high level of geopolitical risks and speculation on this market for a number of large hedge funds only add the confidences to bulls. Fundamental factors indicate that the epoch of cheap oil - on price $16-22 per barrel - disappeared in to summer.
The economy of the USA “took a seat” to the petroleum “needle”
This summer we became the witnesses of a swift increase in the prices of oil (Fig. 1). Rally petroleum [fyuchersov] it became the basic theme of consideration for the traders, the economists and the politicians. Thus, in August the cost of the barrel of crude oil repeatedly established new absolute maximums. In particular, the threat of the curtailment of oil production in enterprises in the Russian oil company “YUKOS” it repeatedly tossed up price on the international petroleum exchange IPE in London.
Fig. 1. weekly development of the exchange value of petroleum [fyuchersov] of the stamp Of brent.
As can be seen from figure, on August 18 the cost of the barrel of crude oil with the delivery in October on IPE grew by $0.79, or 2.1%, to $41.40. However, this record was beaten already in a day other day, when the new turn of doubts relative to deliveries to oil for the World Market stimulated “the mad” of rally.
For the first time in 21 years of trade in petroleum [fyuchersami] on the exchange IPE in London of their quotation exceeded $45 per barrel, which became new record value for the North Sea oil.
After establishing new records, prices of oil began be corrected to gradually downward. As a result now the cost of crude oil by approximately 40% is higher than that level, at which it was fixed year ago.
Among the basic reasons, which retain prices of oil on the maximum marks, the retention of geopolitical tension in the Near East, into [t].[ch]. acts of terror on the petroleum terminals in Iraq, the strike of oil-industry workers in Norway and Nigeria, political issues in Venezuela, the uncertainty of situation around the company “YUKOS”, the threat of the reduction of oil production in the Gulf of Mexico because of a series of hurricanes and prospect of increasing the level of the world consumption of oil.
Prices grow together with the proposal!
At the end years the international energy agency (IEA), which is of interests of industrial member nations OECD, reexamined the data about the world demand for the oil in 2002-03 yr., after considering new information about the consumption of oil in the countries, not entering in OECD. It turned out that demand for the oil in last two years grew by higher rates than it was considered earlier.
Increased the forecast on the demand for the oil in 2004 in accordance with this conclusion IEA. on 750 thousand barrels of oil per day to 82.2 mln. barrels. After increasing forecast on the demand for the oil in connection with an increase in the base index, agency left without the change forecasts on an increase in the demand for the oil as a whole. According to the forecasts IEA, in 2004. world demand for the oil will grow by 2.5 mln. barrels of oil per day, and in 2005. - to 1.8 mln. barrels. In July universal deliveries to oil increased on 550 thousand barrels of oil per day to 83.5 mln. barrels.
According to the estimations IEA, OPEC it obtained in July 29.1 mln. barrels of oil during the day, including 2 mln. barrels of oil per day in Iraq. 10 countries OPEC, which participate in the agreement about the quotas, i.e., without including Iraq, obtained in July 27.1 mln. barrels of oil per day, against the quota of 25.5 mln., established since July 1. The commodity oil stockpiles and petroleum products in the countries OECD increased in June (last month, for which there are data) to 16 mln. barrels to 2534 mln. barrels. IEA indicated that the growth of oil output OPEC in the recent months reduced the reserve production capacities of cartel up to the very low value. Thus, in July steady reserve capacities OPEC decreased to 600 thousand barrels of oil per day.
This comprises less than 1% world consumption of oil and is very small reserve. For the comparison, in 2002. steady reserve capacities OPEC reached 6-7 mln. barrels of oil per day, or of about 8% of world consumption. Additional, unstable reserve capacities OPEC can compose now 1.5-2 additional mln. barrels of oil per day. According to the estimations IEA, the reserve production capacities of cartel will increase on 370 thousand barrels of oil per day in 2004. and to 680 thousand barrels in 2005. This will be connected with an increase in the capacities in Kuwait, Nigeria, Algeria and Libya.
“The low reserve capacities, existing in OPEC, contributed to an increase in the prices of oil recently”, was indicated international energy agency in the August report. They increase the threat of scarcity on the oil market in the case of the serious disturbance of deliveries to oil from one or other country or another. But the risks of the disturbance of deliveries are present in large quantities.
Nevertheless, IEA expressed doubt about the validity of the present level of prices of oil, after stating in the report the following “market it was stressed, production and infrastructural power are left much to be desired themselves, and to uncertainty they continue to overhang the market. But does justify this price of oil into $45 current prices they are the object of preoccupation is done economic damage.
YUKOS exports more oil, than at the same time last year it is earlier in this year. The proposal of oil anticipates demand. Saudi Arabia has the capability to increase oil production in short periods”. However, in spite of this, attitude of the market for petroleum [fyuchersov] assumes that the prices of oil substantially will not be lowered in the immediate future. “… The current mood of market is inclined to the expectations, that the high prices will be preserved by winter, also, in the following year, was indicated international energy agency. - Important to note, however, that moods they are changeable and they can rapidly change in the dependence on the new events” (k2kapital.com).
Fears about the growth rates
An unrestrained increase in the petroleum prices causes increasingly more fears relative to possible negative action on the growth rates in the U.S.Economy in particular and world economy as a whole. Thus, the published in August report of the Ministry of trade in the USA the growth retardation the GDP [Gross Domestic Product] of the country, and the high cost of energy carriers, which was negatively reflected in the level of consumer spendings, was named as the main reason.
According to the data of ministry, growth rates the GDP [Gross Domestic Product] in THE II quarter composed 3% in the annual calculation they they were lowered not only in comparison with the previous block, but also they proved to be below the averaged forecast of economists - 3.7%. The reviewed index for the I quarter was increased to 4.5. The growth rates in consumer spendings proved to be minimum in past three years. Consumer spendings, to which it is fallen to 70% of American GDP [Gross Domestic Product], grew by 1% in the annual calculation, whereas economists forecast increase to 2%. However, in the opinion the Council member of the managers OF [FRS] Edward [Gremlich], the influence of the current high petroleum prices on the economy not critically, they will not have this powerful effect as “petroleum shocks” of 1970- X and 1980- X yr., but “definitely they will let themselves be known”.
[Gremlich] noted that similar situations on the oil market unavoidably lead to the simultaneous acceleration of inflation and an increase in the unemployment rate. Taking into account the fact that this situation bears temporary nature, it is not the worse version of the course of events, which can realize when monetary authorities they cannot hold inflation under the control. Under normal conditions after the period of low rates monetary authorities, attempting to support the stable growth rates in the economy, carry out the policy of the gradual and very moderate increase in the cost of short term credit. Under “shock” conditions the economy extremely sharply reacts to an increase in the nominal interest rates, in this case demonstrating a temporary increase in both the inflation and the unemployment. With respect to current situation on the market for oil [E]. [Gremlich] also noted that its important characteristic is “temporary of components”, i.e., present high prices of oil they are essential, but in this case only temporary factor of economic development.
The economy of the USA “took a seat” to the petroleum “needle”
This summer we became the witnesses of a swift increase in the prices of oil (Fig. 1). Rally petroleum [fyuchersov] it became the basic theme of consideration for the traders, the economists and the politicians. Thus, in August the cost of the barrel of crude oil repeatedly established new absolute maximums. In particular, the threat of the curtailment of oil production in enterprises in the Russian oil company “YUKOS” it repeatedly tossed up price on the international petroleum exchange IPE in London.
Fig. 1. weekly development of the exchange value of petroleum [fyuchersov] of the stamp Of brent.
As can be seen from figure, on August 18 the cost of the barrel of crude oil with the delivery in October on IPE grew by $0.79, or 2.1%, to $41.40. However, this record was beaten already in a day other day, when the new turn of doubts relative to deliveries to oil for the World Market stimulated “the mad” of rally.
For the first time in 21 years of trade in petroleum [fyuchersami] on the exchange IPE in London of their quotation exceeded $45 per barrel, which became new record value for the North Sea oil.
After establishing new records, prices of oil began be corrected to gradually downward. As a result now the cost of crude oil by approximately 40% is higher than that level, at which it was fixed year ago.
Among the basic reasons, which retain prices of oil on the maximum marks, the retention of geopolitical tension in the Near East, into [t].[ch]. acts of terror on the petroleum terminals in Iraq, the strike of oil-industry workers in Norway and Nigeria, political issues in Venezuela, the uncertainty of situation around the company “YUKOS”, the threat of the reduction of oil production in the Gulf of Mexico because of a series of hurricanes and prospect of increasing the level of the world consumption of oil.
Prices grow together with the proposal!
At the end years the international energy agency (IEA), which is of interests of industrial member nations OECD, reexamined the data about the world demand for the oil in 2002-03 yr., after considering new information about the consumption of oil in the countries, not entering in OECD. It turned out that demand for the oil in last two years grew by higher rates than it was considered earlier.
Increased the forecast on the demand for the oil in 2004 in accordance with this conclusion IEA. on 750 thousand barrels of oil per day to 82.2 mln. barrels. After increasing forecast on the demand for the oil in connection with an increase in the base index, agency left without the change forecasts on an increase in the demand for the oil as a whole. According to the forecasts IEA, in 2004. world demand for the oil will grow by 2.5 mln. barrels of oil per day, and in 2005. - to 1.8 mln. barrels. In July universal deliveries to oil increased on 550 thousand barrels of oil per day to 83.5 mln. barrels.
According to the estimations IEA, OPEC it obtained in July 29.1 mln. barrels of oil during the day, including 2 mln. barrels of oil per day in Iraq. 10 countries OPEC, which participate in the agreement about the quotas, i.e., without including Iraq, obtained in July 27.1 mln. barrels of oil per day, against the quota of 25.5 mln., established since July 1. The commodity oil stockpiles and petroleum products in the countries OECD increased in June (last month, for which there are data) to 16 mln. barrels to 2534 mln. barrels. IEA indicated that the growth of oil output OPEC in the recent months reduced the reserve production capacities of cartel up to the very low value. Thus, in July steady reserve capacities OPEC decreased to 600 thousand barrels of oil per day.
This comprises less than 1% world consumption of oil and is very small reserve. For the comparison, in 2002. steady reserve capacities OPEC reached 6-7 mln. barrels of oil per day, or of about 8% of world consumption. Additional, unstable reserve capacities OPEC can compose now 1.5-2 additional mln. barrels of oil per day. According to the estimations IEA, the reserve production capacities of cartel will increase on 370 thousand barrels of oil per day in 2004. and to 680 thousand barrels in 2005. This will be connected with an increase in the capacities in Kuwait, Nigeria, Algeria and Libya.
“The low reserve capacities, existing in OPEC, contributed to an increase in the prices of oil recently”, was indicated international energy agency in the August report. They increase the threat of scarcity on the oil market in the case of the serious disturbance of deliveries to oil from one or other country or another. But the risks of the disturbance of deliveries are present in large quantities.
Nevertheless, IEA expressed doubt about the validity of the present level of prices of oil, after stating in the report the following “market it was stressed, production and infrastructural power are left much to be desired themselves, and to uncertainty they continue to overhang the market. But does justify this price of oil into $45 current prices they are the object of preoccupation is done economic damage.
YUKOS exports more oil, than at the same time last year it is earlier in this year. The proposal of oil anticipates demand. Saudi Arabia has the capability to increase oil production in short periods”. However, in spite of this, attitude of the market for petroleum [fyuchersov] assumes that the prices of oil substantially will not be lowered in the immediate future. “… The current mood of market is inclined to the expectations, that the high prices will be preserved by winter, also, in the following year, was indicated international energy agency. - Important to note, however, that moods they are changeable and they can rapidly change in the dependence on the new events” (k2kapital.com).
Fears about the growth rates
An unrestrained increase in the petroleum prices causes increasingly more fears relative to possible negative action on the growth rates in the U.S.Economy in particular and world economy as a whole. Thus, the published in August report of the Ministry of trade in the USA the growth retardation the GDP [Gross Domestic Product] of the country, and the high cost of energy carriers, which was negatively reflected in the level of consumer spendings, was named as the main reason.
According to the data of ministry, growth rates the GDP [Gross Domestic Product] in THE II quarter composed 3% in the annual calculation they they were lowered not only in comparison with the previous block, but also they proved to be below the averaged forecast of economists - 3.7%. The reviewed index for the I quarter was increased to 4.5. The growth rates in consumer spendings proved to be minimum in past three years. Consumer spendings, to which it is fallen to 70% of American GDP [Gross Domestic Product], grew by 1% in the annual calculation, whereas economists forecast increase to 2%. However, in the opinion the Council member of the managers OF [FRS] Edward [Gremlich], the influence of the current high petroleum prices on the economy not critically, they will not have this powerful effect as “petroleum shocks” of 1970- X and 1980- X yr., but “definitely they will let themselves be known”.
[Gremlich] noted that similar situations on the oil market unavoidably lead to the simultaneous acceleration of inflation and an increase in the unemployment rate. Taking into account the fact that this situation bears temporary nature, it is not the worse version of the course of events, which can realize when monetary authorities they cannot hold inflation under the control. Under normal conditions after the period of low rates monetary authorities, attempting to support the stable growth rates in the economy, carry out the policy of the gradual and very moderate increase in the cost of short term credit. Under “shock” conditions the economy extremely sharply reacts to an increase in the nominal interest rates, in this case demonstrating a temporary increase in both the inflation and the unemployment. With respect to current situation on the market for oil [E]. [Gremlich] also noted that its important characteristic is “temporary of components”, i.e., present high prices of oil they are essential, but in this case only temporary factor of economic development.
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