Price of petroleum

From Wikipedia, the free encyclopedia

This article is about the price of crude oil; see gasoline usage and pricing for information about derivative motor fuels.

This article or section may be slanted towards recent events.
Please try to keep recent events in historical perspective. (January 2008)

This article needs additional citations for verification.
Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (January 2008)

Brent spot prices, May 1987 – April 2008.

Weekly reports on crude oil inventories or total stockpiles that exist in storage facilities like these tanks, have a strong bearing on oil prices.

References to the price of petroleum are usually references to the spot price of either WTI/Light Crude as traded on the New York Mercantile Exchange (NYMEX) for delivery in Cushing, Oklahoma or the price of Brent as traded on the Intercontinental Exchange (ICE, into which the International Petroleum Exchange has been incorporated) for delivery at Sullom Voe. The price of a barrel (which is 42 US gallons or approximately 159 litres) of oil is highly dependent on both its grade (which is determined by factors such as its specific gravity or API and its sulphur content) and location. The vast majority of oil will not be traded on an exchange but on an over-the-counter basis, typically with reference to a marker crude oil grade that is typically quoted via pricing agencies such as Argus Media Ltd and Platts. Other important benchmarks include Dubai, Tapis, and the OPEC basket. The Energy Information Administration (EIA) uses the Imported Refiner Acquisition Cost, the weighted average cost of all oil imported into the US as their "world oil price".

The demand for oil is highly dependent on global macroeconomic conditions, so this is also an important determinant of price. Some economists claim that high oil prices have a large negative impact on the global growth.

OPEC, consisting of Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela, was formed to maintain the price of oil at a level most beneficial to its membership considered as a whole, and is considered to be a cartel by some observers. ^[1]

1 History
- 1.1 Recent price history
2 Future
3 Market listings
- 3.1 Oil Futures Investigation
4 References
5 See also
6 External links

[edit] History

Long-term oil prices, 1861-2007 (orange line adjusted for inflation, blue not adjusted).

Main articles: 1967 Oil Embargo, 1973 oil crisis, 1979 energy crisis, 1980s oil glut, and Oil price increase of 1990

[edit] Recent price history

Main article: Oil price increases since 2003

A recent low point was reached in January 1999 ($8 per barrel), after increased oil production from Iraq coincided with the Asian financial crisis, which reduced demand. The prices then rapidly increased, more than tripling by September 2000 (35 dollars per barrel), then fell until the end of 2001 before steadily increasing, reaching US $40 to US $50 per barrel by September 2004. ^[2]

In October 2004, light crude futures contracts on the NYMEX for November delivery exceeded US $53 per barrel and for December delivery exceeded US $55 per barrel. Crude oil prices surged to a record high above $60 a barrel in June 2005, sustaining a rally built on strong demand for gasoline and diesel and on concerns about refiners' ability to keep up.

Overnight gas price hike shown at a Chicago area BP-Amoco station (background) on August 12, 2005. The Shell station (foreground) has not yet posted the 12 cent price hike.

This trend continued into early August 2005, as NYMEX crude oil futures contracts surged past the $65 mark as consumers kept up the demand for gasoline despite its high price. Crude oil futures peaked at a close of over $77 a barrel in July 2006, and in December 2006 at about $63. That is just about where they began the year 2006.^[3] In September 2007, US crude (WTI) crossed $80 a barrel. Multiple factors caused this high price. OPEC announced an output increase lesser than expected.^[4] US stocks fall lower than experts predicted^[5] and six pipelines were attacked by a leftist group in Mexico. ^[6]

In October 2007, US light crude rose above $90 per barrel for the first time, due to a combination of tensions in eastern Turkey and the reducing strength of the US dollar.^[7]

On January 2, 2008, a single trade was made at $100 per barrel^[8], but the price didn't stay above $100 until late February.

Oil prices for brent in US$ and Euro

Oil broke through the $110/barrel mark on March 12, 2008,^[9] $125/barrel on May 9, 2008,^[10] and $130/barrel on May 21, 2008. ^[11]

The current record high was reached on June 6, 2008, at $138.54/barrel.^[12]

[edit] Future

Fatih Birol, chief economist of the International Energy Agency expressed his opinion in October 2007 that oil prices will remain high for the foreseeable future. Birol says this is due to rapid increases in demand from the rapidly growing economies of India and China.^[13] The ministers of OPEC, meeting in early December 2007, appeared to reach a consensus for high, but stable prices. This price point would deliver consistently high income to the oil producing states, but avoid prices so high that they would depress the economies of the oil consuming nations. A range of 70-80 dollars a barrel was suggested by some analysts to be OPEC's goal.^[14] Major oil exporting countries are rapidly developing and are using more oil domestically. Particularly significant are Indonesia, which no longer exports oil, Mexico and Iran, where projected demand will exceed production in about 5 years, and Russia, which is growing rapidly.^[15]

Due to rapidly changing valuations of the United States Dollar, it is unclear when these price points will break. While it is not expected to reach as high as $200 a barrel anytime soon, backsliding but still leveling at the previously unheard of $70 Dollars a barrel could become the norm.

A difficult factor to isolate is the total volume of the futures markets themselves. As there are many indirect owners of futures (401k plans, mutual funds, and even simple savings accounts are routinely invested in such things without the account holder being explicitly aware,) the knock-on effect of a downwardly spiraling economy could itself further devalue oil. Similar factors corrected the run away that Gold and Silver experienced in the early 1980s, for example.

As with any speculation market, it is well within investors' ability to drive up the price of futures well out of proportion with the supplies & demands involved. But there are two dangers that can quickly effect such transient spikes. Demand can drop off, and supply can increase. This was precisely the case in 1998/1999 when the Asian market collapsed (reducing demand) and Iraq increased production by over 12%(increasing supply/surplus). This caused the all time low of $8/barrel.

The future is not certain, but it is known that OPEC and other Oil producers are currently showing rather large surpluses. As well, as American and European economies are forced into reducing demand, it is not likely that anything above $70/barrel can be sustained for more than the next nine months. This was shown, in effect, when the price of a barrel of oil dropped significantly after expected demand of the American Memorial Day traffic failed to materialize. Similar disappointments can be expected for the American 4th of July, and Labor Day holidays.

^[16]

[edit] Market listings

Main article: Commodities markets

Oil is marketed among other products in commodities markets. See above for details. Widely traded oil futures, and related natural gas futures, include:^[17]

PETROLEUM
- Nymex Crude Future
- Dated Brent Spot
- WTI Cushing Spot
- Nymex Heating Oil Future
- Nymex RBOB Gasoline Future
NATURAL GAS
- Nymex Henry Hub Future
- Henry Hub Spot
- New York City Gate Spot

[edit] Oil Futures Investigation

The U.S. Commodity Futures Trading Commission announced "Multiple Energy Market Initiatives" on 2008-05-29. Part 1 is "Expanded International Surveillance Information for Crude Oil Trading." The CFTC announcement stated it has joined with the United Kingdom Financial Services Authority and ICE Futures Europe in order to expand surveillance and information sharing of various futures contracts.^[18] This announcement has received wide coverage in the financial press, with speculation about oil futures price manipulation.^[19] ^[20] ^[21]