Crude oil crosses $100 mark again

The crude oil prices jumps back over $100 from $97 per bbbls earlier after the news of blast in a Refinery in Texas. This is second time that oil prices have breached the $100 per barrel level. About one month back the oil prices touched the triple digit mark for the first time but soon retreated back. During the recent recession fears the prices fell back to the level of $80s. Some of the retreat was due to better supply over demand. Even though the recession fear is not totally out, and the supply-demand equation in the near future is intact, the oil prices have been rising because of speculation.

Some of the possible triggers for the recent uptrend seen in the oil prices:
OPEC meeting for decreasing production
Political issues between U.S. and Venezuela
Exxon-Venezuela conflict
Political instability in Nigeria
Blast in Texas Refinery

Peak Oil : Myth, Fallacy or Crisis?

Recently I attended a lecture by Dr. Marian Radetzki, Professor at Lulea University, on “The Fallacies of Peak Oil". The facts presented by him instigated me to do some findings of the complete situation and views from the peak oil people.

Peak Oil concept first appeared in 'Hubbert peak theory' which says that peak oil is the time at which the global petroleum production is maximum. The argument is based on the assumption that the global production rates of petroleum follow an approximate normal (bell shaped curve). Thus at peak oil point half of the total oil reserves of the world would have been consumed. After the peak oil the production of the oil should decrease and the prices of the oil should rise steeply.
Since the oil prices have risen very steeply in recent times and have broken all records and crossed the $100 per barrel mark for crude oil prices, many peak oil proponents argue that peak oil has arrived and if the consumption of oil is not controlled the reserves will not last longer than five years.

In 1974 Marion King Hubbert, a geo-scientist at the Shell research lab, predicted that peak oil would be in 1995 at about 12 Gbbl (gigabarrels) per year. Since then there have been many changes both in the consumption pattern and production rate and estimate of the oil reserves. Oil production rate has more than doubled and still the peak didn't arrive because of increase in the estimated global reserves of oil during this period.

ASPO (Association for the Study of Peak Oil and Gas), an informal network of scientists interested in determining the peak oil and its impact, predicted that global production of oil peaked in 2004 at about 23 Gbbls. However, in 2005, ASPO revised its prediction for the peak oil to the year 2010 taking into account both conventional and non-conventional sources of oil.

The opponents of the peak oil argue that the steep rise in prices of oil in 2004 was not alone and it was a trend observed in all major commodities. Moreover the increase in prices of oil is dependent on the political situation and some temporary supply side constraints. They argue that the estimation of the oil reserves have been increasing as is the oil production. Hence despite of increase in production the peak oil situation is far from us.

Oil price struggles to touch $100

Oil prices are closing in towards the triple digit figure of $100 per barrel. The $100 is a very strong psychological barrier and the prices may move swiftly in either direction once this level is crossed.

The US light crude hit an all time high of $99.29 per barrel on Tuesday. This was in anticipation of the reduction in inventory level in Wednesday’s announcement. Also, there was fire at two US refineries.

The oil prices have risen by more than 40% this year from $61/barrel. Much of this increase can be attributed to the weakening dollar and concerns for supply of oil. Markets are adjusting for the future risks of US attacking Iran.

High oil prices are having an adverse impact on Asian economies importing oil.

King Abdullah of Saudi Arabia said "Oil is energy for building and prosperity, it shouldn't become a means of conflict". Saudi Arabia is the biggest oil producer in the Organisation of the Petroleum Exporting Countries (OPEC). OPEC has a share of more than 40% in oil exports.

Natural gas price may rise

Oil prices are trading at all time high but Natural gas is priced low with respect to its highest price. Oil has risen by more than 40% this year while Natural gas is at pretty much the same level as it was last year. This should attract some Americans to use Natural gas for heating instead of oil during this winter season. Natural gas is selling at about $8 per million BTU. Seeing the increase in demand in future the prices of Natural gas may increase by some amount.

Oil may cross $100 per barrel by December

Crude oil prices scaled another height and crossed $97 per barrel in trade at NYMEX. In addition to factors discussed earlier, the rise can be attributed to the supply side concerns owing to the bombing in Afghanistan and attack on a Yemen oil pipeline. Moreover US government's prediction of fall in inventory level and increased oil consumption added to the supply worries. Meanwhile the demand is remaining high ensuring the trend of oil prices intact.

Oil prices: what will Dr. Manmohan Singh do?

Oil prices have been increasing and has reached $96 per barrel in international market. So, it is for prime Minister Dr. Manmohan Singh to decide on whether or not to increase the oil prices. Congress does not want to increase the prices due to coming elections in gujrat and himachal pradesh. But, it has to take an action as loss of oil marketing companies is rising as told by Murli Deora, petroleum and natural gas minister.

The options that government at present has is to sell more oil bonds, cut the excise duties on petrol and diesel or cut the custom duty on crude. Petroleum ministry is pressing to cut excise duties by 2 Rs on petrol and 1 Rs on diesel.

PetroChina crosses $1 Trillion mark

PetroChina created history by becoming the first company in world to cross trillion dollar mark in market capitalization. PetroChina's share were listed today in Shanghai stock exchange after it came up with an IPO last month. PetroChina's shares on listing today were trading at triple the initial public offer price. At these prices the valuations certainly look expensive but considering the kind of bull run that Chinese stock market is undergoing the stock can have some upside from these level also. The relative valuation of the Chinese Oil & Gas major can be compared by the fact that the second largest company by market capitalization, Exxon Mobil Corp., is only half of the PetroChina's current market cap when PetroChina is not even in world's top 50 companies by earnings. PetroChina's valuation can only be explained by the future outlook of the company and kind of growth Chinese economy is witnessing.

Crude oil price scales new heights

Crude oil price crossed $93 (€64) a barrel in New York.
In London, Brent Crude hit an all-time high of $90 a barrel.
In October the price has risen by more than 16%.
In the year 2007 it has increased by more than 50%.
The current price of crude oil is an all time high in nominal dollars. However inflation adjustments make it slightly below the peak touched of $101.7 in April 1980 (Iran cut the exports).

The trend for the crude oil price is shown below:


Reasons for sharp rise:

Mexico shut one-fifth of its production due to bad weather in Gulf of Mexico.
OPEC is not increasing production to compensate for the reduced supply.
Peak demand period because of northern hemisphere winter season.
Tensions between Turkey and Iraq over Kurdish militants.
U.S. sanctions over Iran's nuclear program.
Dollar has touched a record low.
Oil futures are being used as hedge against the weakening dollar.