Price of oil

From Wikipedia, the free encyclopedia
  (Redirected from Price of petroleum)
Jump to: navigation, search
This article is about the price of crude oil. For information about derivative motor fuels, see gasoline and diesel usage and pricing. For detailed history of price movements since 2003, see World oil market chronology from 2003.
Oil prices, 1861–2011 (1861–1944 averaged US crude oil, 1945–1983 Arabian Light, 1984–2011 Brent). Red line adjusted for inflation, blue not adjusted. Due to exchange rate fluctuations, the red line represents the price experience of U.S. consumers only (linear graph).
Long-term oil prices, 1861–2011 (logarithmic graph)
Brent barrel petroleum spot prices since May 1987. Due to exchange rate fluctuations, the real price line is only relevant to the United States and countries with a currency tied to the U.S. dollar at a constant rate throughout the period.
Weekly reports on crude oil inventories or total stockpiles in storage facilities like these tanks have a strong bearing on oil prices

The price of oil as quoted in news in North America generally refers to the WTI Cushing Crude Oil Spot Price West Texas Intermediate (WTI), also known as Texas Light Sweet, is a type of crude oil used as a benchmark in oil pricing and the underlying commodity of New York Mercantile Exchange's oil futures contracts. WTI is a light crude oil, lighter than Brent Crude oil. It contains about 0.24% sulfur, rating it a sweet crude, sweeter than Brent. Its properties and production site make it ideal for being refined in the United States, mostly in the Midwest and Gulf Coast regions. WTI has an API gravity of around 39.6 (specific gravity approx. 0.827) per barrel (159 liters) of either WTI/light crude as traded on the New York Mercantile Exchange (NYMEX) for delivery at Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange (ICE, into which the International Petroleum Exchange has been incorporated) for delivery at Sullom Voe. Cushing, Oklahoma, a major oil supply hub connecting oil suppliers to the Gulf Coast, has become the most significant trading hub for crude oil in North America.

The price of a barrel of oil is highly dependent on both its grade, determined by factors such as its specific gravity or API and its sulphur content, and its location. 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 its "world oil price".

The demand for oil is highly dependent on global macroeconomic conditions. According to the International Energy Agency, high oil prices generally have a large negative impact on the global economic growth.[1]

The Organization of the Petroleum Exporting Countries (OPEC) was formed in 1960[2] to try to counter the oil companies cartel, which had been controlling posted prices since the so-called 1927 Red Line Agreement and 1928 Achnacarry Agreement, and had achieved a high level of price stability until 1972.

The price of oil underwent a significant decrease after the record peak of US$145 it reached in July 2008. On December 23, 2008, WTI crude oil spot price fell to US$30.28 a barrel, the lowest since the financial crisis of 2007–2010 began, and traded at between US$35 a barrel and US$82 a barrel in 2009.[3] On 31 January 2011, the Brent price hit $100 a barrel for the first time since October 2008, on concerns about the political unrest in Egypt.[4]

By 12 December 2014 the price of benchmark crude oil, both Brent and WTI reached their lowest prices since 2009. Brent crude oil dropped to US$62.75 a barrel for January delivery on the London-based ICE Futures Europe exchange and futures for West Texas Intermediate (WTI) for January settlement slid to $58.80 a barrel in electronic trading on the New York Mercantile Exchange (NYME) This represents a 40 per cent decrease in 2014.[5]

History[edit]

Price history from 2003 onwards[edit]

Further information: 2000s energy crisis

Benchmark pricing[edit]

Main article: Benchmark (crude oil)

After the collapse of the OPEC-administered pricing system in 1985, and a short lived experiment with netback pricing, oil-exporting countries adopted a market-linked pricing mechanism.[6] First adopted by PEMEX in 1986, market-linked pricing received wide acceptance and by 1988 became and still is the main method for pricing crude oil in international trade.[6] The current reference, or pricing markers, are Brent, WTI, and Dubai/Oman.[6]

Market listings[edit]

Main article: Commodity market

Oil is marketed among other products in commodity markets. See above for details. Widely traded oil futures, and related natural gas futures, include:[7]

  • Petroleum
    • Nymex Crude Future
    • Dated Brent Spot
    • WTI Cushing Spot
    • Nymex Heating Oil Future
    • Nymex RBOB (Reformulated Blendstock for Oxygenate Blending) Gasoline Future
  • Natural gas
    • Nymex Henry Hub Future
    • Henry Hub Spot
    • New York City Gate Spot

Most of the above oil futures have delivery dates in all 12 months of the year.[8]

Speculation[edit]

Business Week reported (2008-06-27) that the surge in oil prices prior to 2008 had led some commentators to argue that at least some of the rise was due to speculation in the futures markets.[9]

CFTC investigation[edit]

The U.S. Commodity Futures Trading Commission (CFTC) announced "Multiple Energy Market Initiatives" on May 29, 2008. 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.[10] This announcement has received wide coverage in the financial press, with speculation about oil futures price manipulation.[11][12][13]

The interim report by the Interagency Task Force, released in July, found that speculation had not caused significant changes in oil prices and that fundamental supply and demand factors provide the best explanation for the crude oil price increases. The report found that the primary reason for the price increases was that the world economy had expanded at its fastest pace in decades, resulting in substantial increases in the demand for oil, while the oil production grew sluggishly, compounded by production shortfalls in oil-exporting countries.

The report stated that as a result of the imbalance and low price elasticity, very large price increases occurred as the market attempted to balance scarce supply against growing demand, particularly in the last three years. The report forecast that this imbalance would persist in the future, leading to continued upward pressure on oil prices, and that large or rapid movements in oil prices are likely to occur even in the absence of activity by speculators. The task force continues to analyze commodity markets and intends to issue further findings later in the year.

2014 global oversupply[edit]

By 12 December 2014 the price of benchmark crude oil, both Brent and WTI reached their lowest prices since 2009. Brent crude oil and accordingly to all type of Crude Oil dropped to US$62.75 a barrel for January delivery on the London-based ICE Futures Europe exchange and futures for West Texas Intermediate (WTI) for January settlement slid to $58.80 a barrel in electronic trading on the New York Mercantile Exchange (NYME) This represents a 40 percent decrease in 2014.[5] The CIBC reported that the global oil industry continued to produce massive amounts of oil in spite of a stagnant crude oil market. Oil production from the Bakken formation was forecast in 2012 to grow by 600,000 barrels every year through 2016. By 2012 Canadian tight oil and oil sands production was also surging.[14]

In June 2014 crude oil prices dropped by about a third as U.S. shale oil production increased and China and Europe's demand for oil decreased. In spite of huge global oversupply, on 27 November 2014 in Vienna, Saudi Oil Minister Ali al-Naimi, blocked the appeals from the poorer OPEC member states, such as Venezuela, Iran and Algeria, for production cuts. Benchmark crude, Brent oil plunged to US$71.25, a four-year low. Al-Naimi argued that the market would be left to correct itself, this decision will result to shut down the small companies in US & to slow Shale Fracturing operations in US. OPEC had a "long-standing policy of defending prices." OPEC is ready to let the Brent oil price drop to $60 to slow down US shale oil production.[15] In spite of a troubled economy in member countries, al-Naimi repeated his statement on Saudi inaction on 10 December 2014.[16] By the end of 2014, as the demand for global oil consumption continued to decline, the remarkably rapid oil output growth in ‘light, tight’ oil production in the North Dakota Bakken, the Permian and Eagle Ford Basins in Texas, while rejuvenating economic growth in "U.S. refining, petrochemical and associated transportation industries, rail & pipelines, destabilized international oil markets."[17]

Comparative cost of production[edit]

In this table based on the Scotiabank Equity Research and Scotiabank Economics report published 28 November 2014,[17] economist Mohr compares the cost of cumulative crude oil production in the fall of 2014.

Plays Cost of production in northern hemisphere autumn 2014
Saudi Arabia US$10–25 per barrel
Montney Oil Alberta and British Columbia US$46
Saskatchewan Bakken US$47
Eagle Ford, USA Shale+ $40–6 US$50 (+ Liquids-rich Eagle Ford plays, assuming natural gas prices of US$3.80 per mmbtu)
Lloyd & Seal Conventional Heavy, AB US$50
Conventional Light, Alberta and Saskatchewan US$58.50
Nebraska USA Shale US$58.50
SAGD Bitumen Alberta US$65
North Dakota Bakken, Shale US$54–79
Permian Basin, TX Shale US$59–82
Oil sands legacy projects US$53
Oil sands mining and infrastructure new projects US$90

This analysis "excludes "'up-front' costs (initial land acquisition, seismic and infrastructure costs): treats 'up-front' costs as 'sunk'. Rough estimate of 'up-front' costs = US$5–10 per barrel, though wide regional differences exist. Includes royalties, which are more advantageous in Alberta and Saskatchewan." The Weighted average of US$60-61 includes existing Integrated Oil Sands at C$53 per barrel."[17]

Future projections[edit]

Main articles: Oil depletion and Peak oil

Peak oil is the period when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. It relates to a long-term decline in the available supply of petroleum. This, combined with increasing demand, will significantly increase the worldwide prices of petroleum derived products. Most significant will be the availability and price of liquid fuel for transportation.

The US Department of Energy in the Hirsch report indicates that “The problems associated with world oil production peaking will not be temporary, and past “energy crisis” experience will provide relatively little guidance.”[18] The 2014 United Nations World Economic Situation and Prospects report notes that "Oil prices were on a downward trend in the first half of 2013 (after a spike in January and February caused by geopolitical tensions with Iran), as global demand for oil weakened along with the deceleration in world economic growth overall." [19]

See also[edit]

References[edit]

  1. ^ http://www.iea.org/Textbase/Papers/2004/High_Oil_Prices.pdf
  2. ^ http://www.slate.com/id/2170040/nav/tap3/ , http://wps.aw.com/aw_carltonper_modernio_4/0,9313,1424964-content,00.html
  3. ^ http://tonto.eia.doe.gov/dnav/pet/hist/rwtcd.htm
  4. ^ Brent crude oil price hits $100 a barrel
  5. ^ a b "WTI Oil extends drop below $60 as IEA cuts forecast; Brent falls", Bloomberg News, 12 December 2014, retrieved 12 December 2014 
  6. ^ a b c Mabro, Robert; Organization of Petroleum Exporting Countries (2006). Oil in the 21st century: issues, challenges and opportunities. Oxford Press. p. 351. ISBN 9780199207381. 
  7. ^ "Bloomberg Energy Prices". Bloomberg.com. Retrieved 2008-06-11. 
  8. ^ List of Commodity Delivery Dates on Wikinvest
  9. ^ Ed Wallace (June 27, 2008). "Oil Prices Are All Speculation". Business Week. 
  10. ^ "CFTC Announces Multiple Energy Market Initiatives". CFTC. Release: 5503-08. May 29, 2008. Archived from the original on 2008-06-01. Retrieved 2008-06-11. 
  11. ^ "CFTC in talks to plug the 'London loophole'". The Financial Times. 2008-06-10. Retrieved 2008-06-11. 
  12. ^ Mufson, Steven (2008-05-30). "Probe of Crude Oil Trading Disclosed". Washington Post. Retrieved 2008-06-11. 
  13. ^ "Government investigates oil markets". CNN Money. 2008-05-30. Retrieved 2008-06-11. [dead link]
  14. ^ "Why price discounts for Canadian crude are here to stay", Alberta Oil, 1 September 2012, retrieved 8 December 2014 
  15. ^ Lawler, Alex; Sheppard, David; El Gamal, Rania (27 November 2014), Saudis block OPEC output cut, sending oil price plunging, Vienna: Reuters, retrieved 10 December 2014 
  16. ^ Krishnan, Barani (10 December 2014), Oil crashes 5%, nears $60 on weak U.S. demand, Saudi inaction, London: Globe and Mail via Reuters, retrieved 10 December 2014 
  17. ^ a b c Mohr, Patricia (28 November 2014), Scotiabank Commodity Price Index (PDF), retrieved 8 December 2014 
  18. ^ DOE Hirsch Report
  19. ^ http://www.un.org/en/development/desa/policy/wesp/wesp_current/wesp2014.pdf

External links[edit]