Price of oil

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

Medium-Term Oil Prices, 1994-2008 (not adjusted for inflation).

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. For example in Europe a particular grade of oil, say Fulmar, might be sold at a price of "Brent plus US$0.25/barrel", or as an intra-company transaction. IPE claim that 65% of traded oil is priced off their Brent benchmarks. 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".

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

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. This means that the relationship between the oil price and global growth is not particularly stable although a high oil price is often thought of as being a late cycle phenomenon.

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.

History

Long-Term Oil Prices, 1861-2006 (orange line adjusted for inflation, black not adjusted).

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

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.

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.

Short-Term Oil Prices, 2005-2007 (not adjusted for inflation).

On August 1, 2007, US crude reached a new intraday high of $78.77 a barrel after the Energy Information Administration announced that oil stocks in the US were below market expectations and refinery output had increased. Following further reflection the price later slid backwards.

On September 14, 2007, US crude (WTI) reached a new intraday high of $80.36 a barrel. Multiple factors have caused this high price. OPEC announced an output increase lesser than expected. US stocks fall lower than experts predicted and six pipelines were attacked by a leftist group in Mexico.

On October 16, 2007, US light sweet crude rose to a new record of $87.97 on the news that non-OPEC oil producers were expected to reduce daily output by approximately 110,000 barrels.

On October 19, 2007, US light crude rose to $90.02 per barrel due to a combination of tensions in eastern Turkey and the reducing strength of the US dollar. Prices fell briefly on the expectation of increased US crude oil stocks, however they rose again rapidly to a peak of $92.22 on October 26, 2007 when stocks were revealed to have instead fallen. This was repeated on October 31, 2007, when an expected 100,000-barrel rise in US crude oil stockpiles turned out to be a 3.9 million barrel fall, pushing US light crude oil prices to another new record of $96.24. Prices continued to rise to a peak of $-6.24 on November 7, 2007 before starting to fall.

On January 2, 2008, a single trade was made at $100 per barrel in view of the combined effect of violence in Nigeria, Algeria, and Pakistan, the weak US dollar and the threat of cold weather. The trader who paid $100 almost immediately sold the contract for less than $100, and took a loss. Therefore, this one $100 trade for oil remains in question, as some believe this trader might have had other motives for the purchase and subsequent loss.

On January 3, 2008 oil again hit an intraday high of almost $100 due to a higher-than-expected decline in crude oil supplies.

The spot price for crude oil briefly hit $100 per barrel on January 2nd, settling at a record nominal price of $99.64 per barrel. According to DOE's Energy Information Administration (EIA), the record price reflected the current tight and volatile world market for crude oil, and the market is expected to remain tight throughout 2008. Oil suppliers that are not part of the Organization of Petroleum Exporting Countries (OPEC) will not be able to keep pace with increasing oil demand this year, so developed countries will either count on increases in OPEC production or will have to draw on their stored inventories of crude oil. With the supply situation remaining tight, EIA's latest "Short-Term Energy Outlook," expects crude oil prices to average $94 per barrel for January and to average $87 for the year as a whole.

Oil prices for brent in US$ and Euro

The oil prices will be felt at the pump, with the U.S. price for regular gasoline peaking near $3.50 per gallon this spring, and both gasoline and diesel prices averaging greater than $3 per gallon for the next two years. Regular gasoline is expected to average $3.14 per gallon in 2008, dropping to $3.03 per gallon in 2009, while diesel fuel prices are expected to average $3.29 per gallon in 2008. The oil prices will also impact those households using heating oil, as its price is expected to average $3.19 per gallon in 2008.

During the week of February 24-29, oil consecutively closed above 100 dollars a barrel.

Oil broke through the $110/barrel mark to a record $110.20 on March 12, 2008 before closing the day at $109.92.

The price increased to $115.07/barrel on April 16, 2008 due to the increasing weakness of the US dollar, and increased again to $117 per barrel on April 18, 2008 after a militant group in Nigeria said it had attacked an oil pipeline.

On May 9, 2008, the oil price exceeded $125/barrel for the first time.

A high price for the near 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. 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. 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.

Market listings

Main article: Commodities markets

Oil is marketed among other products in commodities markets. See above for details.

See also

• Asymmetric price transmission
• Elasticity (economics)
• Energy crisis
• Energy efficiency
• Food vs fuel
• Gasoline usage and pricing
• Peak oil
• Plug-in hybrid
• Stagflation

External links

• Daily crude oil prices..
• History and Analysis of Crude Oil Prices.
• the latest on oil and gasoline prices, NYME.
• Gasoline and diesel fuel prices, EIA, Department of Energy.
• "It's Still About Oil," by Michael Johns, April 30, 2007.
• NYMEX 8 year future prices for light sweet crude.