Slow US Economic Growth Leads to Decline in Oil Prices

On September 19, 2011, Oil fell to a week’s low on speculations that the US oil demands might falter owing to the slow movement of the economic growth. The US is one of the world’s leading consumers of oil. The fall was also an outcome of the European debt crisis taking a bad turn, thus causing a widening of the Brent oil’s Premium, towards US futures. 

There was also a 1.5% decline in the Futures, a result of the US finance minister’s decision not to use measures to stimulate the economy. A data from the Government revealed that the home sales were stagnant and construction figures fell during last month. The US’s fuel usage too shrunk by 3.8%. Oil also declined owing to the failure to breach the moving average of 50 day.

The only thing that is concerning analysts world over is the direction of US trend to use fuel and other petroleum products. Considering such issues with unconfirmed facts, oil prices will continue to be weak, said analysts of Fat Prophets in Sydney. However Europe will continue to be a pessimistic vista for crude markets for some time to come.

Oil for delivery of October as well witnessed a fall and was at $86.65 in the electronic trading on the New York Mercantile Exchange. Brent crude for November’s settlement too declined by 82 cents, in the ICE Futures Europe Exchange, London.  

This decline overall is a result of the doubt and apprehensions associated with the US economic moves and the consumer trends in oil demands. The rising concern over the Europe debt crisis is yet another major take off for the fluctuations oil prices the world over. Investors have a tendency to sell off contracts when they foresee a stall in the price advances, much below the technical level.

Diesel Emerges Strong as Europe Moves

On Thursday September 15, 2011, Brent crude leaped by about 3% and reached as high as $115 per barrel, this came as response the launch of a coordinated effort to boost the funding in European bank, by the Central Banks.

The news that most central banks around the world will cooperate in preventing the European debt and thus avoid the freeze of money in the markets was welcomed as a positive effort towards curbing another recession.

Expecting a rise in industrial demand, diesel and heating oil, tossed up by 3%. Lawrence Eagles, an analyst at JP Morgan said the heating oil and diesel inventories will witness a downward move in the coming months though.

Us Crude Oil for October delivery rose and reached to $89.40. While US heating oil leaped by 2.7% and RBOB Futures of Gasoline were at 2.1% increase; Gasoline Futures, which are the main distillate German contract gained a 3% high. US crude Brent premium reached $26, marking a $2 of widening. The sell off on the spread last week however caused its narrowing.

There is an increase in the number of people filing new claims for benefits of being jobless, indicating a weak economic movement thereby capping price rise. There was a sharp decline in the business activity especially in the mid Atlantic region of the US for yet another consecutive month, as reported by the Federal Reserve Bank of Philadelphia.

The weak data might have created a situation for an economic boost by the Federal Reserve. The meeting yet to be conducted by the Federal Reserve is expected to uncover new moves for growth.”Commodities have been in direct correlation to quantitative easing,” said the President of Springer Financial Advisors, Keith Springer, Sacramento, California.

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The Abiotic Theory of Oil

Like other items that we use daily, there is a theory of classification that applies on Oil too. We have always classified the food we eat, the sports team we are with, our political views, and political affinities. Similarly the oil industry is also labeled distinctly into two earlier and now the third one has emerged in the scenes.

First there are the “Peak Oil” theorists according to whom the oil is a fast depleting resource and we are using this resource at a pace too fast. The second one is rather a pragmatic segment which believes that with development in science and technology, and thus in the methods of drilling oil, newer reserves can be continually identified and thus the supply would remain plentiful.

The third group has deeper interests in the roots and the origins of oil. Their theory has been labeled as the Abiotic theory. Though they have been discarded as being idealist or frauds, opine that oil can be extracted from hydrocarbons existing deep within the core of the Earth. According to them the hydrocarbons seep up the layers of earth and form oil sources after replenishment.

A similar discussion was noticed in the Forbes in the year 2008, a group of Ukrainian and Russian scientist said that the oil does not essentially come from the fossils, but are actually formed within the earth’s mantle, and the forces of heat, pressure and chemical reactions synthesizes it before it appears on the surface of the earth.

The argument about the origin of oil might go on, while people will keep on using the energy resource despite the fact that it is a fast depleting resource. While the US takes the lead in using and also seemingly in years to come in producing oil, present resources must be drawn towards finding an alternate source as good as oil too.

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US to be the Top Oil Producer in 2017 – Sunday Times

The Sunday Times as well as a report by Goldman Sachs predicted that the US will become the largest oil producer by the year 2017. This drastic overhaul would only be possible by a complete change in the definition of oil and also increasing the productions of shale that is rich in liquid. The leading news paper made this prediction based on the fact that US would increase its daily oil production from 8.3 to 10.9 million barrels a day. This increase will however take another 5 years to be achieved.

The US would in this process surpass current leaders like Russia and Saudi Arabia, as reported by the press. These reports were further backed by the fact that Russia would by no means increase its production of 10.7 million barrels a day, a figure at which it is at presently. Thus an accession by about 100,000 barrels a day seems rather an impossible thing to do.

The reports include natural gas liquid, and liquefied refinery gases, and also some bio fuels possibly, thereby leading to a figure of 8.3 million barrels a day. The EIA however reported the daily US production of oil to be 5.6 million barrels a day as reported in June 2011.

This accrued production can be mainly attributed to the drilling from the Bakken Shale in North Dakota and Montanna and also from the West Texas and New Mexico Permian basins. Nevertheless this increased production does not mean that US will no longer have to import oil from the world. It will still have to import as much oil as it does it presently, taking the current trend of consumption in consideration. It will neither lead to a fall in prices though. The drilling from numerous wells will produce less oil in the initial years, and thus the prices will be higher than expected.

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US Receives Warning from China after Spills

The ConocoPhillips, a US oil giant has received instructions from China to watch out for the leaks, and also clear the spill that has occurred in the north coast. The place is still leaking oil into the sea as confirmed by the China’s State Oceanic Administration, which carried out a round of checks last week. The SOA said that the platform is continually leaking since a long period of time and can be considerable problem if continues further.

ConocoPhillips in defense said that it had ceased production in the Penglai 19-3 field. However this has caused a series of angry accusations amongst public. The SOA resultantly has called upon the US firm and its Chinese counterpart CNOOC to thoroughly check into the leak and seal the oil source, to undo the sea pollution.

Oil spills in the sea have recently become a rising concern with drilling and oil production becoming an aggressive activity across the globe. The sky rocketing oil prices add to the plight of oil companies on one hand and to that of the consumer on the other. Some of the largest oil spills in the past have affected sea as well as human life greatly and need a strict check.

The SOA said that the incident has polluted 5,500 square kilometers of sea. The spill was detected in the month of June and the firm had time till August to clear up the mess, however a recent survey revealed a different picture and has thus pushed the body to punish the company and those responsible.

Subsequently ConocoPhillips has extended due apologies and has also confirmed a concern to benefit the Bohai Bay’s environment, by setting up a fund that would address company’s legal responsibilities as per Chinese Laws.

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Us and Europe’s Clash over the Debt Crisis causes Oil to Drop

September 16, 2011 witnessed sharp drops in the Oil prices, as the US and Europe brawled over the recent debt crisis that arose in Greece.

Benchmark West Texas Crude lost about 1.6% and closed at $87.96 a barrel in the city of New York.Brent Crude on the other lost about 8 cents and landed at $112.22 in London, which is a base for pricing various foreign oil varieties.

The US treasury’s Chief, Timothy Geithner is yet to meet The European Finance Ministers, located in Poland, depicting the growing US concerns over the direction in which Europe is heading. The potential Greek default might affect the entire European continent as well as might reach the US.

The weak global economy is attributed to low energy prices and further uncertainties from Europe has forced experts to feel tremendous pressure in the energy sector. Europe is a large user of crude amounting to about 18% of global production.

The US thus is now moving towards a strong decision, while the European leaders seem to be pushing back, postponing the decision to increase Greek payouts, until this October. This has triggered experts comment that the European Government is in no mood to solve the issue.

There are several associated speculations with the use of energy consumption, unemployment being the greatest of them.Less employment will hold back people from using more oil and energy resources. At the Gas pumps, retail Gasoline fell once again after a consecutive 5 day fall.The national oil average fell by a penny and reached $3.611 a gallon, according to the reports of the club AAA, Wright Express Oil Price Information Service.

Thus the world seems to be heading towards a rather uncertain if not completely weak economy.

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The Price Bounce and the Game Changer

Most of the oil consuming countries including the US released their emergency oil stocks to hold further oil price rise. Resultantly, oil prices rose by a dollar in London. The action was seen as a major success, as remarked most oil experts. The US witnesses a peak in driving this time of the year and this release of stocks has averted a price rise, while keeping the oil speculators in a strict check.

The IEA release has overhauled the psychology that existed in the oil market until recently, as remarked by an expert. This has also put speculators into a series of thoughts, making them worry about the fact that if oil prices try to break above certain level, extra oil can come into market, by the consumer countries using the strategic reserves of oil.

The IEA’s extra supply of oil has brought about a 22% slide in the prices of oil in US. US Crude oil traded at about $90 on September 15, 2011. Though the program of releasing 60 million barrels, by the IEA comprising 28 nations, came up in June this year, it has formally come to an end on September 15, 2011. In its young stage it lead to an immediate drop in $7 per barrel in Brent Crude. In April, this year Brent crude was at its highest at $127 a barrel; however it did not touch this level once the release decision rolled out.

The release by the IEA nation was a reaction to the prices of oil surging ahead steadily and also to cater to the supply in war torn areas of Libya. This was a marked departure from the Bush policy of using strategic reserves only for a war situation or a major natural hurricane.

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September Oil Crisis – A Recap

The IEA maintains that the current oil demand has exceeded that production. This is a case since the June 2010, which marked a milestone in the surging oil demands. The difference between this demand and supply which is presently 1.4 million barrels a day is because the global stocks of oil have been decreasing gradually. This imbalance between the supply and the demand of oil is a also the governing factor behind the high prices of oil and gas.

The August oil production figures amounted to 89.1 million barrels a day and a loss of 1.6 million barrels a day from Libya’s share of production. Resultantly the benchmark globally for Brent Crude has been exceeding $100 a barrel since last spring this year, and there are least signs of it falling.

The Agency has however trimmed its demand forecasts for the coming years as a result of growing concerns about the uncertainty looming large over the global economy. The agency has cut the oil demands for this year by 200,000 barrels a day and by 400,000 b/d in the year 2012. This is however just a slowing down of annual growth of demands of oil, and not an actual reduction in demand. The IEA is of the opinion that oil demands for next year will increase only by 1.4 million barrels a day next year.

This forecast though seems to be a rather optimistic approach, keeping the rising troubles in the world economy in mind. The future of the Libyan oil production remains uncertain still, despite the fall of the insurgents and the Tripoli too. A number of countries’ position in the economic sphere will determine the future of oil demands and supply; China being most important one amongst them. Middle Eastern regions of oil productions will also have an interesting story to tell.

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Notes on Peak Oil

New York oil closed nearing to $90.21 on September 12, 2011. This is reportedly the highest possible since early August this year. The EIA’s report revealing larger than imagined US oil stockpiles brought the prices down to $88.91 the next day. London trading of Brent was however rather stable at around $112 per barrel in this week of September.

The US crude oil stocks declined by 6.7 million barrels as per the EIA reports. However traders largely see this as a result of the storms, bringing down oil production in the Gulf considerably. The gasoline sales in the US (dropped by 8.8 barrels a day) have raised considerable concerns as well. The oil markets are largely controlled by the twists in the EU and its associated debts. The future of EU’s monetary position, along with the possibility of a default in the Greek bank, is the primary concern this week.

IEA’s review on the oil demand forecast is mainly attributed to the worsening of the economic outlook at large. The outgrowing of demand to supply remains a chief concern for the IEA it though seems to be better than what was experienced in 2010. The year 2010 ran a 1.4 million barrel a day’s increase in demand against production. This initiated the agency to arrange for a release of oil stockpiles, to combat rising prices.

The continued rise in global demand might still lead to a supply deficit in the coming year too as foreseen by the agency. The Libyan oil production rate for the export market remains an unknown factor that might alter the face of global oil demand. The Libyan officials in charge of oil production say that 160,000 barrels a day of oil are being pumped, amounting to only a 10% of what Libya used to produce before the insurgency.

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Demand for Oil Reviewed by OPEC

The OPEC has revised its earlier forecast on demands and consumption of oil. The revised report says that the demand would definitely be lower than expected and is accounted to the slow growths in economies and the further weakening of the economy in the US. The oil industry has been facing serious uncertainties due to the slow moving global economy and the fear of US recession. The slow moving economy has drastically affected every major industry, not just oil.

The soaring oil prices are also attributed the volatility in the equity markets. Most investors and economists are constantly harped by the fear of an approaching recession. The market demand seems to be uncertain in the next year too owing to large cut offs in oil supply from Libya. This has as well propelled US based Brent Crude contracts of Futures. The investors also fear the decision of the Standard and Poor to bring the levels of debt in US as well as Europe down.

The OPEC members have decided not to increase production of oil to combat rising prices. There seems to be no further requirement to release surplus oil stocks to lower the prices of oil. Though there has been a supply of as good as 60 million barrels of oil in the world markets from the members of the Paris based IEA. This has checked the price rise considerably and has also alarmed speculators of oil prices worldwide. Contrary to the OPEC’s decision to further oil production, Kuwait and Saudi Arabia have increased oil production significantly. The OPEC decision came in June 2011 in the Vienna meet.

Despite several revisions and decisions, this 37^th week of the year has once again witnessed an oil price rise, owing to an apprehended turbulent market condition in days to come.

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Crude Oil an important commodity today

Crude oil is one of the most important sources for energy. US is one of the largest users and has a great monopoly in crude oil as it has great reserves that has been stocked for years to come.  Crude oil is refines and it is used for transportation purposes. Crude oil is an important resource as it is used to make gasoline, chemicals, diesel and fuel.  The presence of hydrocarbons makes it a very important and resourceful commodity.

The meandering oil prices clearly indicate economic upheaval in the world. Experts and analysts all over the world fear a double dip recession in the days to come. The global economy is in a mess. The inflation rates are increasing with each passing month. The rich are getting richer and the poor are getting poorer.

The mixed signal of slowdown that may have a rippling impact on the global economy is directly impacting crude oil prices. Even if the global demand seems to be shaken Asian demand for crude oil is robust. In fact china is playing a crucial role in this demand as it imported 4.87 million barrels a day in July 2011.

Crude oil is one of the most vital commodities today. As per the International Energy Agency the world economy has the thirst for 60,000 barrels days of crude oil. This is a fairly huge amount. This number is poised to increase and it would touch 70,000 barrels day by 2012.

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Economic Slump lets Oil Prices Tumble Further

Tuesday September 06, 2011: The fear of an economic crisis potentially heading towards the EU and the US looms large thereby leaving little option for the oil market but to fall. Benchmark West Texas Intermediate Crude was 43 cents lower and was at 86.02 per barrel in the New York exchange. Though US benchmark regained after tumbling to an all time low of $83.20 per barrel, this was in effect to a parallel boost in Brent Crude.

London witnessed a 2.6% increase in Brent crude and was at $112.89. The steady drumbeat of economies slumping further and heading towards a prolonged recession, spooked investors across the world; forcing analysts to predict a nerve wracking year ahead. The coming months would provide enough for daily bearings, leaving little room for investments.

Investors however are also eyeing upon the upcoming and most awaited speech by the US President, Barrack Obama, about how he plans create a stimulating effect on a slow moving economy and to create better jobs. The present employment rate hovering at about 9.1%; the Fed or the White House is expected to do something that has a major impact, in order to turn the situation around.

The year though began with a positive note, with analysts predicting record oil demands, but the current tide is against such predictions. A cut down on the purchase of consumer goods like clothes, books, toys, electronics, especially from China, leaves very little scope for the Chinese to increase oil demands, due to a remarkable lack in investing power.

The remaining half of the present year is expected to witness a short demand of oil across the globe as analyzed by Jim Ritterbusch.

Retail gasoline also laid flat at $3.66 per gallon. Heating oil on the other side was added by 1.28 cents making it grow to $3.0102 per gallon.

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