this is my new Crude Oil Price Chart with data from the EIA. You can download it as a PDF file on my new blog:
Tag Archives: oil prices
this is my new Crude Oil Price Chart with data from the EIA. You can download it as a PDF file on my new blog:
OPEC’s plan to cut oil output to keep prices from falling emphasizes the urgency for the western world to get independent from the cartel
A global economic cooldown is more and more likely with the United States and many countries of the European Union already in or close to a recession. The global financial crisis sparked by the burst of the housing bubble in America spreads hysteria, fear and confusion around the world. Stock markets around the world have gone crazy. We saw tremendous losses and short-term record gains on stock markets in recent weeks. Many large financial institutions have collapsed or needed to be bailed out by governments with tax payer money. Fears that the deeply routed problems in the financial as well as in the private sector could bring down the whole system, prompted governments around the globe to take action. In the meantime, trillions of dollars are used to stabilize the financial system. This unprecedented government intervention has, however, not yet restored confidence. Shares plummeted, trillions of dollars in share value have been lost. Markets almost imploded during the last few weeks. Unemployment in the U.S. has risen to a relatively high level. The situation is bad and its widely expected that we haven’t seen the bottom yet.
One consequence is that energy demand from industrialized nations has fallen which reduces demand for oil decisively. Consequently, we watched the price of oil falling by more than 50% since July’s record high at $147 a barrel. Crude oil is trading close to $70 per barrel right now. Though oil is still expensive in comparison with oil prices below $16 a barrel like in the late 1990s. But the plunge in oil prices is apparently causing fear in many oil exporting countries. Especially OPEC countries have become used to extremely high revenues from oil exports and populist leaders like in Iran and Venezuela increased government spending exorbitantly. Hugo Chavez of Venezuela uses most of the country’s oil revenues to build up socialism in Venezuela. This is how he managed to be an elected and legitimatized leader. But the annoying thing for these countries is that they depend on oil prices above $80 a barrel to balance their budget. If oil prices don’t recover, Iran, Venezuela as well as Iraq could see a budget deficit. Even Saudi Arabia has an interest in keeping oil prices high, as it needs $65 a barrel to pay its bills. Some countries like Iraq already revised budget projections downward and cut spending, but other countries, especially those who are lead by populists, are afraid that less generous public spending wouldn’t go down well with the people and threaten their power. That’s why OPEC will hold an emergency meeting on Friday at its headquarters in Vienna. They’re expected to decide on considerable output cuts in order to “stabilize prices”. In other words, they can’t get enough money and they don’t care about whether their customers actually could bear the burden at the moment. In the late 1990s, the situation was similar when oil-exporting countries saw urgent need for higher prices during the price slump caused by the Asian crisis. At that point in time, oil prices were approaching the $10 line. Now, the cut in oil production should shore up prices at a level that is much higher than back in the 90s. Nevertheless, it’s not certain whether an output cut can reverse the trend in oil prices immediately. However, there can be no doubt that oil prices will soar even above $150 a gallon in the medium-term, as oil production will peak inevitably within the next decade. Global oil reserves are limited, and most of the oil that is easily accessible has already been pumped out of the wells. Fortunately, the current crisis gives us some extra time to prepare for a transition away from oil. The more time we have to come up with alternatives, the less brutal this transition will be. But we obviously have to hurry, though, as we do not anymore want to rely on OPEC’s good will beside from the enormous amount of money that is daily transferred to the Middle East. Energy independence is vital for national security, economic stability and growth. When we start to tap into energy sources that are accessible at home using technologies that are developed at home, millions of new jobs will be created and tax revenues will remain within the borders. In addition, we can reduce our carbon dioxide emissions and combat global warming.
As reducing the power of the oil cartel and shifting to alternatives is in our and the planet’s best interest, there’s no reason to hesitate!
What we can do:
The economic outlook not only for the United States, but also for Europe and the rest of the world has become bleaker recently. During the last few weeks, things have changed dramatically. The era of investment banks is over with Goldman Sachs and Morgan Stanley having changed their status voluntarily. We saw some banks fail, others being taken over. Though the $700 billion bailout passed Congress successfully and was signed into law by George W. Bush, nobody feels like being out of the mess. There is nobody making a profit due to the rescue package. This short-term fix is just aimed at preventing things from getting worse. Though this enormous government intervention doesn’t go down well with everybody, the financial rescue plan seems to be the best way the administration could respond to the tightening credit market, spreading panic and a weakening economy.
In Europe, even governments that were convinced that the credit crisis couldn’t affect their country seriously are now getting nervous. Several European economies have fallen into recession. Amongst them, Ireland, Italy and France. The European Commission expects the UK, Spain and Germany to fall into recession this year. After the leaders of France, Britain, Italy and Germany met in Paris last weekend, they all stated their willingness to take action, but as this being Europe, they had no clue how to make a joined approach to counteract the spreading anxiety and tightening credit markets. Instead, each nation is trying to find a fix itself and a pan-European solution is out of reach. We could see nationalizations of banks, smaller bailouts and guarantees. Especially Germany’s government which had ruled out the possibility of a recession for the last few months, was forced to act when the Hypo Real Estate financial group, a major property lending and banking company, needed a €50 billion bailout this weekend. On Sunday, the German chancellor announced a federal guarantee for private savings deposits. The value of the guarantee could surpass one trillion euros. This unprecedented guarantee should keep citizens from withdrawing their money from banks and contributing to the lack of liquidity. Despite the bailout of Hypo Real Estate and the guarantee, stock markets nosedived on Monday. This unexpected step rather confirmed the anxiety of investors.
Unimpressed by fear in America and Europe about the volatile financial markets and a significant global slowdown, China is stabilizing the global economy a bit with strong growth rates. Rather than the financial crisis, it’s the scandals of the country’s dairy industry that are making headlines.
Meanwhile, oil prices have hit an 8-month low due to an expected shrinking demand from crisis-torn Europe. Oil prices fell below the $90 per barrel mark. This being no excuse for being less concerned about oil dependence gets obvious when following Iran’s concern that oil prices are dropping too low. The country wants OPEC to counteract and stabilize oil prices at a high level. Undoubtedly, such a stupid policy would be the death-blow for the global economy.
Whoever says he knows where crude oil will be trading in one or two weeks, don’t listen! No expert can make any accurate short-term predictions as we’ve been experiencing extreme fluctuations recently.
Crude oil prices have been on the move in the recent years, but what we saw in the last couple of weeks is unprecedented. We saw oil prices falling from their all-time high of $147.27 per barrel in July to about $90 per barrel last week. Then it rose sharply, and completely unexpected to $130 a barrel on Monday. Monday’s $25 gain was the largest single-day price increase ever for crude oil. Today, crude oil is trading at about $105 a barrel. These hefty fluctuations are not at all backed by the fundamentals of supply and demand – though the long-term price increase can be attributed to growing demand and limited supply. Given these fluctuations, no serious analyst can make a crude oil price forecast for the short term.
The reason why oil prices came down again the last few days is mainly the uncertainty about the steps the administration is going to take in order to stabilize the financial markets. With the turmoil going on at Walll Street, investors pour more money into commodities. After the end of the last remaining investment banks in the United States and the acquisition of Washington Mutual by J.P. Morgan Chase, commodities seem to be a rather safe investment. Investors know that the price of oil is almost certain to rise in the foreseeable future. We are at the beginning of an energy crisis that the world has never before experienced. This means lots of challenges, need for change and last but not least, a whole bunch of opportunities! Western countries have to take the lead in energy technology as this can become the key to future growth, stability and wealth. Which economy can afford living with today’s dependence on foreign energy supplies and the unpredictable price fluctuations. Alternative energy sources will stabilize the price and price fluctuations will become rare. Moreover, the costs of these green technologies are gradually coming down. That’s why we have to get involved into this exciting and promising industry.
The long standing oil price surge has caused pain at the gas pump for drivers around the world. As you can see on the U.S. gasoline price chart from the Energy Information Administration (Gasoline prices in the U.S….), gasoline prices in America have almost doubled since January ’07. In January 1999, crude oil was as cheap as $16 per barrel. Since then, prices have been increasing rapidly, topped $100 per barrel on January 2nd, and headed to a new record of $147.27 on July 11th 2008. This extraordinary development prompted many analysts to talk about a bubble. Generally, speculators are blamed for driving up the price of petroleum unsupported by the fundamentals of supply and demand. Politicians would like to use this feeling to tighten their grip on the financial markets.
However, the price of crude oil is now down by more than 18%, trading at $119.85 today. Not even one month passed since the record high and oil prices have lost more than 27 dollars per barrel. Now, the question arises: Has the bubble popped? Should we expect a crash in oil prices? Is crude oil overvalued?
Many analysts predicted that the oil bubble was set to burst as early as 2005 when oil was traded below $60. Of course, there was a tremendous influx of money into oil futures in recent years. But those who were betting on rising prices are increasingly moving from oil futures and oilcontracts. Some experts expect even a kind of commodities sell-off. The significant decline we experienced in the matter of weeks is likely to be the result of emotional behavior rather than rational decisions. However, there are some facts that support the recent development: Demand for oil dropped in almost all industrialized countries, people are cutting back on their driving and shift away from gas-guzzlers to more efficient cars and cars using alternatives to gasoline for power (see Drivers are ready for electric cars and all other posts on that topic), Housespeaker Nancy Pelosi proposed to release some oil from the strategic oil reserves in order to lower prices at the pump, Hurricane Edoward is not threatening any major supply depots, offshore drilling is under consideration and many major economies are heading into recession or stagflation.
Nonetheless, we are at the beginning of an era of scarce and costly oil. Even if oil prices might dip below $100 a barrel for a while, this will be just a pause on the path to new records. First, there’s the OPEC cartel which will inevitably reduce oil production to maintain prices if they should fall too much. Second, oil is not abundant as many think, there’s no excess supply with growing demand from emerging economies in Asia and oil production will hardly manage to cope with demand.
(Experts from the Energy Watch Group say that oil production has already peaked in 2006 and will decline steadily: Oil will become even more expensive, a coming up fundamental transition – scary news) Third, lax monetary policy around the globe fueled inflation and the rise in global commodity prices. Excess money in circulation contributed decisively to the oil price spike. To maintain the value of their petroleum exports, oil-exporting nations were happy to see the price of oil going up every time when the dollar lost in value against other currencies such as the euro. And it is the fundamentals of supply and demand that justify the high price of oil. Unless the global economy heads into recession, we won’t see any lasting price decreases. There’s no speculative oil bubble, global oil reserves are at low levels, demand is close to exceeding supply and any international crisis or natural disaster will drive up the price of oil to new record levels. Iran’s OPEC governor Mohammad Ali Khatibi said: “In case the dollar continues to depreciate, and the political tensions continue to deepen, the oil price may even reach $500 per barrel.” In the event that e.g. the Strait of Hormuz, which is a strategically extremely important waterway between the Persian Gulf andthe Gulf of Oman with close to 40% of the global oil supply passing through it, were sealed off, 500 dollars a barrel could become a real scenario as global oil supplies would be affected decisively. Iran threatens to disrupt sea traffic in the case of an attack by Israel or the United States.