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Price of oil

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This is an old revision of this page, as edited by TomTheHand (talk | contribs) at 02:47, 6 July 2008 (→History: Err... no. Real price is greater than nominal price when looking backwards. Yes, nominal / price level = real, but price level is less than 1, so real > nominal.). The present address (URL) is a permanent link to this revision, which may differ significantly from the current revision.

This article is about the price of crude oil; see gasoline usage and pricing for information about derivative motor fuels.
Brent spot prices, May 1987 – April 2008.
Weekly reports on crude oil inventories or total stockpiles in storage facilities like these tanks have a strong bearing on oil prices.

The price of petroleum means the spot price of either WTI/Light Crude as traded on the New York Mercantile Exchange (NYMEX) for delivery in Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange (ICE, into which the International Petroleum Exchange has been incorporated) for delivery at Sullom Voe. The price of a barrel of oil is highly dependent on both its grade, determined by factors such as its specific gravity or API and its sulphur content, and its location. The vast majority of oil is not traded on an exchange but on an over-the-counter basis, typically with reference to a marker crude oil grade that is typically quoted via pricing agencies such as Argus Media Ltd and Platts. Other important benchmarks include Dubai, Tapis, and the OPEC basket. The Energy Information Administration (EIA) uses the Imported Refiner Acquisition Cost, the weighted average cost of all oil imported into the US, as its "world oil price".

The demand for oil is highly dependent on global macroeconomic conditions. Some economists say that high oil prices have a large negative impact on the global growth.

OPEC, consisting of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela, was formed to maintain the price of oil at a level most beneficial to its membership considered as a whole, and is considered to be a cartel by some observers. [1]

History

Main articles: 1967 Oil Embargo, 1973 oil crisis, 1979 energy crisis, 1980s oil glut, and Oil price increase of 1990
Long-term oil prices, 1861-2007 (orange line adjusted for inflation, blue not adjusted).

Recent price history

Main article: Oil price increases since 2003
Price for West Texas Intermediate from 1999 to June 2008 in US$

A recent low point was reached in January 1999 of $16 (all prices are in US$ per barrel), after increased oil production from Iraq coincided with the Asian financial crisis, which reduced demand. Prices then increased rapidly, more than doubling by September 2000 to $35, then fell until the end of 2001 before steadily increasing, reaching $40-50 by September 2004. [2] In October 2004 light crude futures contracts on the NYMEX for November delivery exceeded $53 and for December delivery exceeded $55. Crude oil prices surged to a record high above $60 in June 2005, sustaining a rally built on strong demand for gasoline and diesel and on concerns about refiners' ability to keep up. This trend continued into early August 2005, as NYMEX crude oil futures contracts surged past $65 as consumers kept up the demand for gasoline despite its high price. Crude oil futures peaked at a close of over $77 in July 2006, and in December 2006 at about $63. That is just about where they began the year 2006.[3] In September 2007, US crude (WTI) crossed $80. Multiple factors caused this high price. OPEC announced an output increase lesser than expected.[4] US stocks fall lower than experts predicted[5] and six pipelines were attacked by a leftist group in Mexico. [6]

In October 2007 US light crude rose above $90 for the first time, due to a combination of tensions in eastern Turkey and the reducing strength of the US dollar.[7]

On January 2, 2008, a single trade was made at $100[8], but the price did not stay above $100 until late February.

Oil prices for Brent in US$ and Euro

Oil broke through $110 on March 12, 2008[9], $125 on May 9, 2008[10], $130 on May 21, 2008 [11] and $140 on June 26, 2008.

Prices on June 27, 2008 touched $142.26 for August in the New York Mercantile Exchange, the highest price ever, amid Libya's threat to cut output, and OPEC's president predicted prices may reach $170 by the summer.[12][13] Oil prices on June 28 hit a record of $142.99 at 1:58 p.m., the highest since 1983, and to $142.97, the highest intraday price since 1988, owing to a weak dollar, geopolitical unrest and global equities slump.[14][15][16] Oil rose on July 1 to a NYME record $143.67 and a London ICE Futures Europe exchange record $143.91.[17][18] On July 3 prices hit $145 for the first time.[19] London Brent crude reached a record of $145.75 a barrel, and Brent crude for August delivery peaked to a record $145.11 a barrel on London's ICE Futures Europe exchange, and to $145.85 a barrel on the NYMExchange.[20][21] By midday in Europe, light, sweet crude for August rose to a record $ 145.85 a barrel on the NYME while Brent crude futures rose to a trading record of $ 146.69 a barrel on the ICE Futures exchange.[22][23]

Future

Fatih Birol, chief economist of the International Energy Agency said in October 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the rapidly growing economies of India and China.[24] The ministers of OPEC, meeting in early December 2007, appeared to reach a consensus for high, but stable prices. This price point would deliver consistently high income to the oil producing states, but avoid prices so high that they would depress the economies of the oil consuming nations. A range of $70-80 was suggested by some analysts to be OPEC's goal.[25] This would be in step with the price of shale oil, which, though more expensive to drill, will not likely go above $100. [26] The ministers of OPEC Major oil-exporting countries are rapidly developing and are using more oil domestically. Particularly significant are Indonesia, which no longer exports oil, Mexico and Iran, where projected demand will exceed production in about five years, and Russia, which is growing rapidly.[27]

Due to rapidly changing valuations of the United States dollar, it is unclear when these price points will break. While it is not expected to reach as high as $200 anytime soon, backsliding but still leveling at the previously unheard of $70 could become the norm.

Russian energy giant Gazprom meanwhile forecast that soaring oil prices would "very soon" hit 250 dollars a barrel.

A difficult factor to isolate is the total volume of the futures markets themselves. As there are many indirect owners of futures (401k plans, mutual funds, and even simple savings accounts are routinely invested in such things without the account holder being explicitly aware,) the knock-on effect of a downwardly spiraling economy could itself further devalue oil. Similar factors corrected the run away that gold and silver experienced in the early 1980s, for example.

As with any speculation market, it is well within investors' ability to drive up the price of futures well out of proportion with the supplies and demands involved. But there are two dangers that can quickly effect such transient spikes. Demand can drop off, and supply can increase. This was the case in 1998/1999 when the Asian market collapsed, reducing demand, and Iraq increased production by over 12%, increasing supply. This caused the all-time low of $8. As it pertains to recent events, the demand side is slowing, though not appreciably enough. The US Congress opened to panels to investigate the potential speculation fraud on Tuesday June 17. On the same day, Saudi Arabian oil production increased by 200,000 barrels a day, the largest in its history was announced as a potential option. This and other factors caused oil to drop for fourth day in a row, closing at $133.53.[28]

Market listings

Main article: Commodities markets

Oil is marketed among other products in commodities markets. See above for details. Widely traded oil futures, and related natural gas futures, include:[29]

  • PETROLEUM
    • Nymex Crude Future
    • Dated Brent Spot
    • WTI Cushing Spot
    • Nymex Heating Oil Future
    • Nymex RBOB Gasoline Future
  • NATURAL GAS
    • Nymex Henry Hub Future
    • Henry Hub Spot
    • New York City Gate Spot


Oil Futures Investigation

The U.S. Commodity Futures Trading Commission announced "Multiple Energy Market Initiatives" on 2008-05-29. Part 1 is "Expanded International Surveillance Information for Crude Oil Trading." The CFTC announcement stated it has joined with the United Kingdom Financial Services Authority and ICE Futures Europe in order to expand surveillance and information sharing of various futures contracts.[30] This announcement has received wide coverage in the financial press, with speculation about oil futures price manipulation.[31] [32] [33]

References

  1. ^ http://www.slate.com/id/2170040/nav/tap3/ , http://wps.aw.com/aw_carltonper_modernio_4/0,9313,1424964-content,00.html
  2. ^ Light Crude Oil (CL, NYMEX): Monthly Price Chart
  3. ^ http://www.baltimoresun.com/business/investing/bal-bz.petruno26dec26,0,3755461.story?page=2&track=rss
  4. ^ OPEC Press Release 11 September 2007 , OPEC
  5. ^ This Week In Petroleum, EIA
  6. ^ Mexican oil, gas pipelines hit again by explosions, Reuters
  7. ^ Oil prices touch above $90 level, BBC News
  8. ^ Oil price reaches $100 for 1st time: Experts wonder how high the cost of crude can go before putting a crimp in spending and the nation's economy
  9. ^ globeandmail.com: energy
  10. ^ Energy, Oil & Gas
  11. ^ AFP: Oil spikes above 133 dollars on tighter US supplies
  12. ^ bloomberg.com, Oil Is Little Changed After Falling as Investors Sell Contracts
  13. ^ bloomberg.com, Oil Rises to Record Above $141 as Investors Buy Commodities
  14. ^ bloomberg.com, Oil Rises Above $142 for First Time as Investors Spurn Stocks
  15. ^ boston.com, Oil rises to trading, closing records on falling US dollar
  16. ^ guardian.co.uk, Oil hits record near $143 on rising investor flows
  17. ^ bloomberg.com, Oil Is Little Changed, After a Record, Amid Iran Supply Concern
  18. ^ theaustralian.news.com.au, Oil retreats after striking new peak
  19. ^ Oil prices reach new record high
  20. ^ bloomberg.com, Crude Oil Rises to Record Above $144 After U.S. Stockpile Drop
  21. ^ uk.reuters.com, Oil hits new peak
  22. ^ ap.google.com, Oil prices near $146
  23. ^ washingtontimes.com, Oil prices near $146
  24. ^ "IEA says oil prices will stay 'very high,' threatening global growth" article by James Kanter in the International Herald Tribune October 31, 2007
  25. ^ "OPEC Finds Price Range to Live With" A news analysis piece by Jad Mouawad in The New York Times December 6, 2007
  26. ^ "IEA says oil prices will stay 'very high,' threatening global growth" article by James Kanter in the International Herald Tribune October 31, 2007
  27. ^ "Oil-Rich Nations Use More Energy, Cutting Exports" news analysis by Clifford Krauss in The New York Times December 9, 2007
  28. ^ http://gaspricewatch.com/new/default_V3.asp
  29. ^ "Bloomberg Energy Prices". Bloomberg.com. Retrieved 2008-06-11.
  30. ^ "CFTC Announces Multiple Energy Market Initiatives". CFTC. Release: 5503-08. May 29, 2008. Retrieved 2008-06-11.
  31. ^ "CFTC in talks to plug the 'London loophole'". The Financial Times. 2008-06-10. Retrieved 2008-06-11.
  32. ^ "Probe of Crude Oil Trading Disclosed". Washington Post. 2008-05-30. Retrieved 2008-06-11.
  33. ^ "Government investigates oil markets". CNN Money. 2008-05-30. Retrieved 2008-06-11.

See also

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