World economy in crisis: Any hope for price swing?

http://www.businessdayonline.com/index.php?option=com_content&view=article&id=1906:world-economy-in-crisis-any-hope-for-price-swing-&catid=67:oil&Itemid=193

Tuesday, 16 December 2008 00:15 Anonymous
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Following the sudden drop in the crude oil prices in the international market last month, many countries should now be counting their losses. After reaching a world record of $147per barrel in July, there were high expectations among producing nations that the skyrocketed prices would be sustained till the end of the year. unfortunately, this has not been the case, against the predictions and projections of international analysts.
Rise and fall oil prices
Throughout the first half of 2008, oil regularly reached record high prices. On February 29, 2008 , specifically, oil prices peaked at $103.05/bbl, and reached $110.20/bbl on March 12, 2008 , the sixth record in seven trading days. Prices on June 27, 2008 touched $141.71/bbl for August delivery in the New York Mercantile Exchange (after the recent $140.56/bbl), amid Libya ’s threat to cut output, and OPEC’s predicted prices may reach $170 by the Northern summer. The most recent price per barrel maximum of $147.02 was reached on July 11, 2008 . After falling below $100 in the late summer of 2008, prices rose again in late September.


On September 22, oil rose over $25 to $130/bbl before settling again to $120.92/bbl, marking a record one-day gain of $16.37/bbl. Electronic crude oil trading was temporarily halted by NYMEX when the daily price rise limit of $10 was reached, but the limit was reset seconds later and trading resumed. By October 16, prices had fallen again below $70/bbl. Incidentally, as the cost of producing petroleum did not rise significantly, the price increases have coincided with a period of record profits for the oil industry.
Between 2004 and 2007, the profits of the six super majors – ExsonMobil, Total, Shell, BP, Chevron, and ConcoPhillips, totaled $494.8 billion.
Why rise and fall?
According to the US –based Energy Information Administration, the reasons for the surge ranged from the relentless growth for the economies of China and India to widespread instability in oil-producing regions, including Iraq and Nigeria ’s Delta region. Triple-digit oil prices have redrawn the economic and political map of the world, challenging some old notions of power. Oil-rich nations are now enjoying historic gains and opportunities, while major importers including China and India , home to a third of the world’s population confront rising economic and social costs.
From the mid- 1980s to September 2003, the inflation adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. In 2004, the price rose above $40, and then $50. a series of events led the price to exceed $60 by August 11, 2005 and then briefly exceed $75 in the middle of 2006. prices then dropped back to $60/barrel by the early part of 2007 before rising steeply again to $92/barrel by October 200, and $99.29/barrel for December futures in New York on November 21, 2007 .
Higher oil production in Saudi Arabia during summer 2008 combined with demand response to extremely high prices and recent credit market problems that point to a lower trajectory for the world economy and oil consumption growth are currently reinforcing the sentiment of a loosening in the global oil balance. As a result, the recent supply disruptions in the Gulf of Mexico have not resulted in the kind of price increases that would have been expected had they occurred earlier in the year.
However, unless the global economy is weaker than anticipated, EIA expects that the call on organisation of the Petroleum Exporting Countries’ (OPEC) crude oil will exceed OPEC crude oil production over the next six months. This market balance and the relatively low level of organisation for Economic Cooperation and Development (OECD) commercial oil inventories suggest some upward pressure on prices. Meanwhile, if non-OPWEC oil production increases as expected during 2009, it is anticipated that oil price pressures would then moderate.
EIA reviews export earnings
As the economic crunch persists, the Energy Information Administration has revised downward its forecast of OPEC oil export revenues by $32 billion this year to $1.084 trillion from the $1.116 trillion forecast in September.
The EIA has also lowered its forecast of OPEC’s 2009 oil export earnings to $1.226 trillion, a downward revision of $142 billion. The EIA bases its earnings estimates on projections from its Short Term Energy Outlook. The October projection, it said, sees the price of US West Texas Intermediate crude averaging $111.57/barrel this year, $34/bbl lower than its September forecast.

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