Oil braces for tighter longer term
Published: 07 August, 2009, 19:58
TAGS: Markets, Oil, Commodities, Russia and the global economy
Crude oil is again trading about $72 per barrel after a fourth weekly gain, with the International Energy Agency suggesting falling production may drive prices higher and the world towards another oil crisis.
The International Energy agency estimates that 800 of the world’s largest deposits account for three quarters of global oil reserves – and most of them have passed peak production.
But Jorge Montepeque, Global Director of Market Reporting at Platts believes that if there is sufficient demand, there will always be supply.
“Production is a function of price and profit. If you let true market forces operate there is a way for new supply to always come out, or an alternative to be developed. But the history of the world has been that up to now. The world manages to increase production, almost year on year. “
But oil prices could be several times higher than anything seen before as production at new fields will be far more expensive. The cost of production now in Russia’s West Siberian fields can be as low as $7 dollars per barrel.
As these fields dry up, oil majors are being forced to start working in the more severe conditions of East Siberia. Gennady Shmal, Head of the Oil Producers Union, says this involves much greater outlays, which in turn will drive prices.
“Last year Russia’s oil output dropped by half a percent – the first fall in 15 years. The main reason is lack of investment in development of around $40 billion. East Siberia has great potential in terms of new reserves. Some companies have started production there, but production costs are twice as expensive as in West Siberia, which isn’t the cheapest oil region.”
Experts warn the era of cheap oil is over. Even if recent US government initiatives to limit speculation on the oil market succeed, the price looks set to grow inexorably in the wake of soaring production costs.
07.08.2009, 18:03
A year of economic crisis: the property development sectorWith the global financial crisis and ensuing economic slowdown passing its first anniversary, Business RT spoke with Capital Group and MIEL about how the Russian property development sector has coped. |
10.08.2009, 11:08
2 comments
Russian wind power blows in to energy gapRenewable energy producers are lining up to invest billions of dollars in wind power projects in Russia, though Russian power generation has long been dominated by hydro-carbons, nuclear and hydro-electric schemes. |
Rigging the oil market does not work very well if the crooks are trying to damage 2 countries at once. According to James Norman's book "The Oil Card", oil market manipulators were trying to hinder Chinese factory production a few years ago, so they drove up the price of oil. Then last year they decided to attack the Russian economy, so they drove down the price of oil to a ridiculous level. James Norman said it is easy to manipulate the oil futures market with enough cash, and USA had the cash. Supposedly the US had Saudi help in the 1980s to drive the oil price down so low that the Soviet Union ran out of cash and went broke. Meanwhile, to add my 2 cents to what Norman wrote, citizens of the USA were confused by all the price swings and changed their buying habits, which hurt our own economy. Solar technology and battery improvement became popular, then it wasn't, then it was again. We bought small cars in the 1970s and huge SUVs in the 1980s and 1990s, but when gas prices went up again we switched en masse to the small imports from Japan and Korea. Our auto companies weren't very fast at switching their product lines. I think the rapid switch in oil prices last year may have contributed to the problems the auto companies are having today. The worst impact of volatile gas prices was on the ethanol industry. With high gas prices, everybody thought ethanol was finally economically viable as a gas additive. We built refineries all over the Midwest, often at a cost of $100 million and up per refinery. Then the gas prices crashed and so did the ethanol market. Now we have very expensive "white elephants" all over the country and those loans are nonperforming. Somebody in our government or in the oil industry had the "brilliant idea" to attack Russia's economy, but the main thing we seem to have done is shoot our own economy in the foot.
Russia just needs oil above $55, it's as simple as that, anything else is a bonus. The west is so worried about this, that they are now trying to get the financial regulators to rig the markets. Oil does need to move onto a better production orientated pricing, if you want stability and fairness in the market. However, because Russia has oil, the west will always seek to use price manipulation as a weapon against Russia, trying to destroy it at every opportunity. However this weapon is a counterproductive one, as the west still needs oild, and investment needs to go in to get it. Therefore rigging and tightening the price works today, but doesn't give you oil tomorrow. That's unless you find oil of your own, e.g in the United States of Iran. Now that's an interesting plan!
MEJanssen - Great comments, you are a person who understand exactly what's going on.