As the title suggests, this blog is about the Global Oil Crunch and the rising prices of the crude oil barrels. Just a decade back, in 1999, the price of oil hovered around $16 a barrel. By 2008, it had crossed the $100 a barrel mark, almost reaching $150 mark before it consolidated again in the last few days. Something is going really wrong with the global oil market, The price of oil hit a record of $147.27 a barrel on Friday and has doubled in a year, sparking fuel protests worldwide and stoking inflation.
THE REASONS OF THE PING-PONG
Different people give different reasons, some are plausible, some are absurd. The normal economics shows the simple reason that price increases when SUPPLY is lesser than demand, and considering the fact that Global needs are growing, should suffice for an answer. But even the various Security Firms are divided on the exact reasons for the increase.
While Lehmann Brothers claims from the statistical data of BP, that global consumption increased by only 1.1% last year and it will only grow at 1.2% in 2009. This data matches the estimates of International Energy Agency (IEA), which represents 27 major oil-consuming nations around the world.
Ironically, the United States and the other so-called developed countries blamed India and China was surging demand and hence the increase in the global oil prices. On the same steps went a lot of International Institutions (most of them are headed by these countries anyways). The OPEC rejected this blame and explained that it was due to the speculators and the prices were hyped up, but it did not do much about it.
On OPEC’s part, the king of Saudi Arabia declared that Saudi Arabia was pumping at 9.7 million barrels per day in July, the fastest rate for 27 years an increase of 550,000 bpd from two months ago and he continued that despite the implementation by the kingdom and a number of producing nations of production capacity increases, we did not feel a response from the global oil market. Now it is true that the Crude Oil production had been hit in the last few years after Saddam’s regime ended, reducing Iraq’s exports from 2 million barrels per day to 1.4 million barrels per day. But still the production is not as reduced to have caused such a HUGE difference. The increased capacity from other countries has long filled that gap up. And OPEC officials have repeatedly blamed factors beyond their control such as speculation and the weak dollar for oil's rise. The OPEC also welcomed the increased demands from Asian countries and mentioned that "We welcome the demand from them (from India and China). We are ready to cooperate with them to fulfil their demand for oil. Let me say clearly, India and China are not responsible for rise in prices." But of course, they refused to revive the price-band system. For India and China, Indian Petroleum Minister Murli Deora set records straight and made a Forceful statement which says, “While China and India account for over one-third of the global population, their combined oil consumption is less than one-eighth of the world's consumption."
On the other hand, US Treasury secretary Henry Paulson defended the speculators, saying "all the evidence" pointed to tight supply and robust demand. Instability and uncertainty are other concerns, with insurgency and sabotage threatening the vast oilfields of Iraq and Nigeria, and doubts over the immediate future of Iran, the world's fourth-largest oil producer. Goldman Sachs echoed the same emotion and refused to put the blame on the speculators stating that Concerns that the gains in prices are part of a speculative bubble are "unwarranted".
Different people give different reasons, some are plausible, some are absurd. The normal economics shows the simple reason that price increases when SUPPLY is lesser than demand, and considering the fact that Global needs are growing, should suffice for an answer. But even the various Security Firms are divided on the exact reasons for the increase.
While Lehmann Brothers claims from the statistical data of BP, that global consumption increased by only 1.1% last year and it will only grow at 1.2% in 2009. This data matches the estimates of International Energy Agency (IEA), which represents 27 major oil-consuming nations around the world.
Ironically, the United States and the other so-called developed countries blamed India and China was surging demand and hence the increase in the global oil prices. On the same steps went a lot of International Institutions (most of them are headed by these countries anyways). The OPEC rejected this blame and explained that it was due to the speculators and the prices were hyped up, but it did not do much about it.
On OPEC’s part, the king of Saudi Arabia declared that Saudi Arabia was pumping at 9.7 million barrels per day in July, the fastest rate for 27 years an increase of 550,000 bpd from two months ago and he continued that despite the implementation by the kingdom and a number of producing nations of production capacity increases, we did not feel a response from the global oil market. Now it is true that the Crude Oil production had been hit in the last few years after Saddam’s regime ended, reducing Iraq’s exports from 2 million barrels per day to 1.4 million barrels per day. But still the production is not as reduced to have caused such a HUGE difference. The increased capacity from other countries has long filled that gap up. And OPEC officials have repeatedly blamed factors beyond their control such as speculation and the weak dollar for oil's rise. The OPEC also welcomed the increased demands from Asian countries and mentioned that "We welcome the demand from them (from India and China). We are ready to cooperate with them to fulfil their demand for oil. Let me say clearly, India and China are not responsible for rise in prices." But of course, they refused to revive the price-band system. For India and China, Indian Petroleum Minister Murli Deora set records straight and made a Forceful statement which says, “While China and India account for over one-third of the global population, their combined oil consumption is less than one-eighth of the world's consumption."
On the other hand, US Treasury secretary Henry Paulson defended the speculators, saying "all the evidence" pointed to tight supply and robust demand. Instability and uncertainty are other concerns, with insurgency and sabotage threatening the vast oilfields of Iraq and Nigeria, and doubts over the immediate future of Iran, the world's fourth-largest oil producer. Goldman Sachs echoed the same emotion and refused to put the blame on the speculators stating that Concerns that the gains in prices are part of a speculative bubble are "unwarranted".
THE REAL CULPRIT
The last few days have seen a decline in the market price of the crude oil, thus settling the debate once and for all about what was the real reason for the All-Time-High Oil prices.
Seemingly the statements from various authorities about US slowdown, which is more pressurized due to the fluctuations in oil prices and already slowed down Housing sector. The other visible thing is that the rise in the global world consumption is set to reduce due to the higher prices of crude oil. The effect was visible in the United States with 5% drop in demand of motor fuel.
The yo-yoing of the oil prices without any major change in the Global Oil Production System on the whole, i.e. no real things that can disrupt the global oil supply-demand shows that the factors affecting the All-Time-High Oil prices do not really seem to be the normal Supply-demand. Crude plunged $6.44 from the previous week's all-time-high closing of $147.27 on 15th July, and this is the steepest fall in a single day. The prices slid slowly after that. (Current prices visible on the chart on the top).
Seemingly the statements from various authorities about US slowdown, which is more pressurized due to the fluctuations in oil prices and already slowed down Housing sector. The other visible thing is that the rise in the global world consumption is set to reduce due to the higher prices of crude oil. The effect was visible in the United States with 5% drop in demand of motor fuel.
The yo-yoing of the oil prices without any major change in the Global Oil Production System on the whole, i.e. no real things that can disrupt the global oil supply-demand shows that the factors affecting the All-Time-High Oil prices do not really seem to be the normal Supply-demand. Crude plunged $6.44 from the previous week's all-time-high closing of $147.27 on 15th July, and this is the steepest fall in a single day. The prices slid slowly after that. (Current prices visible on the chart on the top).
THE LAST WORD
Though the present price-boom was seemingly due to speculation and not a real Supply-Demand crunch, but the way the consumption of this non-renewable source of energy is growing, the day is not far, when the prices will be HIGH for REAL.
The aftereffects of the Crude oil price rise have been phenomenal, in many poor nations with oil, the proceeds are being lost to corruption, depriving these countries of their best hope for development. For example, India’s inflation rate went spiraling beyond 11%, which overshadows the development and progress made. A lot of agriculture industry, in various countries, depends a lot on petroleum products in farming, from petro-chemically made fertilizers, to tractors for ploughing and the harvesting. Transport industries have also been hit adversely. All said and done, in the end it is the COMMAN MAN who always suffers.
Probably the only solution to this problem is invent the elixir, which would help us create "liquid-gold”.
- The joke in the picture – The price of Gasoline (petrol) in the US is around $4, while Europe sells gasoline in liters and 1 gallon is around 3.78 liters.
- Petroleum is also called liquid gold and Elixir is like a Philosopher’s stone that converts other metals into gold.
3 comments:
Who cares who’s is to blame. What are we going to do about it. From my viewpoint, there are 2 or 3 options. Sell your car, buy a bike and take mass transit. Drive less or buy an electric car or a car powered by hydrogen. And option 3 is buy a pair of comfortable Nike’s and get ready for some walking. Since all of these options are out of the question for me, I decided to try and do something about it. While looking around, I stumbled across GasBankUSA, located at www.gasbankusa.com. The site talks about fixed price gasoline and locking in at a fixed price. An interesting concept and a little better than my magic 8 ball which continually tells me “try again later” everytime I ask it where are gas prices going OR will gas prices continue to rise. Looking through this site, it looks like a way to take control over something we had no control over in the past.
But I can see, only way where MFs can survive now is they can continue buying futures. The moment it will go down, it will be even worst for US...
Blame USA. It is the only country in the world who can survive with 200$ a barrel. It will overkill for country like India and china(and so the increase in price will put a brake on wheels of Indian and Chinese industry- nice and dandy for USA). and I think USA don't give damn to Gulf countries - as their industries are highly depended on export(oil)-import(all other thing-hence depended on USA).
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