Commentary, 9/10 2004

Published Oct 8, 2004
[an error occurred while processing this directive]

Edit page New page Hide edit links

What Goes Up ...
... may never come down. If we were talking about space exploration, we could be referring to some deep-space probe, far from the pull of the Earth’s gravity – although it would certainly come down somewhere, eventually. But if you haven’t guessed by now, we’ll fill you in – we’re thinking about out-of-this-world oil prices.

Only time will tell if the price of oil has spun out of orbit or is just finding a comfortable orbital velocity. A myriad of analysts are currently churning out reams of data and ever increasing stacks of reports on just why and how prices have reached their current levels – and each has a daily opinion about what is the primary cause of each hour’s price. This column is being written in the last week of September, and this week has seen the breach of the USD 50/barrel mark, as well as a bit of a decline, but who really knows where prices will stand after we go to press or as you are reading.

First, the price of oil is subject to psychological market pressures – the rumour mill. Because most who purchase oil contracts never take delivery, only buying and selling the contracts for short-term gain, speculation on the effect of world events plays an ever-increasing role in pricing.

In just the last few weeks, natural events such as tropical storms Ivan and Jeanne have led to speculation concerning the ability to produce oil in the Gulf of Mexico and the ability to deliver oil as tankers have waited for the storms to run their course (and that’s only in Atlantic waters). Political events such as the hostage crisis in Beslan, Russia, have led to speculation about the government tightening it’s grip, yet when ConocoPhillips acquired the Russian government's 7.6 percent stake in Lukoil, it seemed to reassure the markets.

There’s also been much speculation concerning the US government’s Strategic Petroleum Reserve (SPR), and significant loans to refineries did serve to ease troubled minds, if only temporarily. Saudi Arabia’s promise to increase production helped slightly, until further reports pointed out that the Saudi oil sulphur content was a bit high. Add the possible effect on production from the unrest followed by peace agreements in Nigeria into the mix and it’s easy to understand the market’s reactions.

But all of the above, and more that haven’t been mentioned here, are only the current, short-term causes and effects. And these are, as mentioned before, just events that fuel speculation. What remains to be seen, eventually, is the real effect of world demand outstripping world production.

As more and more developing nations and even the least-developed nations improve their economies, raising living standards for their citizens, their requirements, for not only fuel but all of the products that rely on oil, will increase. Much is made of how oil production can remain more or less steady in various regions around the world, and the possibility of new developments, in the coming years, but not enough emphasis is being placed on increasing demands. At some point the lines on the graph will cross, and the only certain outcome is that oil prices will spin out of orbit.

There may eventually be an number of solutions to this coming problem, but right now the question is: “At what point does oil become too dear to burn?”

Bookmark and Share

Do you have any comments to this articel, please let us now:

Do you have any comments to this articel, please let us know:

Please be civil.

(Use Markdown for formatting.)

This question helps prevent spam:





Mobile News
Mobile news

Our news on
your website


Do you have any
tips to us


sitemap xml