As world oil market experienced a volatile trend during September and early October, a cloud of uncertainty hangs over the market that is not good for either consuming countries or producers despite OPEC's best efforts to ensure energy consumers remained well supplied, a senior official at Abu Dhabi National Oil Company (ADNOC) has admitted.
''High oil prices are good for producing countries especially if they are investing billions of Dollars to ensure that oil flows for the next 20 years.
But more than high prices, oil companies need stable prices so that they can plan for returns on their investments. The same principle applies to consuming countries, according to Ali Obaid Al Yabhouni, Planning and Group Coordination Manager, ADNOC.
''Under the present circumstances, the future is uncertain. Above all, producers have to be sure that they will be able to sell their crude oil and for that, they need the world economy to remain healthy, Al Yabhouni noted in an analysis published by the monthly ADNOC News magazine.
He recalled that OPEC ministers met in Vienna in September at a time when the oil price was hovering around $70 leading for calls from consumers for increased production by OPEC in order to lower prices. At the time, many OPEC countries argued that the market was well supplied but they agreed to increase production by 500,000b/d in order to show, once again, that they were ready to supply as much oil as the market needed.
But, he added, since then, prices have continued to rise reaching an all-time high of more than $84/bbl for WTI, the US crude oil benchmark, in early October. Markets appear to have been concerned about a small fall in US crude stocks even though these still remain at a comfortable level, weather conditions in the Gulf of Mexico which shut down some oil rigs and geopolitical factors.
At the same time, many oil companies in producing countries have embarked on ambitious plans to expand long term sustainable production capacity "ADNOC is no exception " and have seen engineering costs more than double. So, while net income has undoubtedly increased substantially, it has not been by as much as many believe.
According to him, world economic growth remained good throughout much of 2007 but uncertainty in financial markets caused by the sub-prime mortgage crisis casts a dark cloud over the future. Recession in the US, could quickly have a knock-on effect on other economies andworld oil demand would quickly be affected.
Citing OPEC projections, he said the group's secretariat believes that the world economy will grow by 5% in 2007 and by a 4.9% in 2008.
While the signs are good for this year, next year?s economic growth is open to question.
A major concern is the role of financial speculators.Oil markets provide instruments for oil companies to manage their risks but increasingly they are being by funds looking to make quick returns.
By August, non-commercial net long positions on Nymex averaged 47,500, more than 50% up from the previous year. Such funds are currently driving the market up by betting on a continued increase in the oil price.
But if the mood swings, they could just as easily help drive the price down.
More than anything, key oil market players look at the refined products situation in the US which is the world?s largest oil market.
''The American refining industry has failed to keep up with growing demand, especially for motor gasoline. There are not enough refineries and those that exist are ageing and subject to unscheduled shutdowns.
Furthermore, many are located on the US Gulf Coast which is prone to hurricanes, he remarked. Source
As a result, he continued, the US is forced to import as much as 1 million barrels a day of gasoline. This is one of the fundamental reasons why oil prices have remained high and one that OPEC can do little to remedy.
News that US refiner Motiva is planning to build a 300,000b/d refinery in Texas is good news for oil market stability.
In the meantime, demand for OPEC oil continues to grow. The OPEC secretariat believes world oil consumption will grow to around 85.7mn b/d, an increase of close to 1.3mn barrels over last year. After discounting the increase in non-OPEC production, demand for OPEC crude is likely to rise by 100,000 b/d to 31mn b/d. OPEC estimates that if current demand rises further, member countries will have to increase production. However, with fears of a weakening in US economic growth in 2008 growing, OPEC notes that demand could be lower than expected. Source
''High oil prices are good for producing countries especially if they are investing billions of Dollars to ensure that oil flows for the next 20 years.
But more than high prices, oil companies need stable prices so that they can plan for returns on their investments. The same principle applies to consuming countries, according to Ali Obaid Al Yabhouni, Planning and Group Coordination Manager, ADNOC.
''Under the present circumstances, the future is uncertain. Above all, producers have to be sure that they will be able to sell their crude oil and for that, they need the world economy to remain healthy, Al Yabhouni noted in an analysis published by the monthly ADNOC News magazine.
He recalled that OPEC ministers met in Vienna in September at a time when the oil price was hovering around $70 leading for calls from consumers for increased production by OPEC in order to lower prices. At the time, many OPEC countries argued that the market was well supplied but they agreed to increase production by 500,000b/d in order to show, once again, that they were ready to supply as much oil as the market needed.
But, he added, since then, prices have continued to rise reaching an all-time high of more than $84/bbl for WTI, the US crude oil benchmark, in early October. Markets appear to have been concerned about a small fall in US crude stocks even though these still remain at a comfortable level, weather conditions in the Gulf of Mexico which shut down some oil rigs and geopolitical factors.
At the same time, many oil companies in producing countries have embarked on ambitious plans to expand long term sustainable production capacity "ADNOC is no exception " and have seen engineering costs more than double. So, while net income has undoubtedly increased substantially, it has not been by as much as many believe.
According to him, world economic growth remained good throughout much of 2007 but uncertainty in financial markets caused by the sub-prime mortgage crisis casts a dark cloud over the future. Recession in the US, could quickly have a knock-on effect on other economies andworld oil demand would quickly be affected.
Citing OPEC projections, he said the group's secretariat believes that the world economy will grow by 5% in 2007 and by a 4.9% in 2008.
While the signs are good for this year, next year?s economic growth is open to question.
A major concern is the role of financial speculators.Oil markets provide instruments for oil companies to manage their risks but increasingly they are being by funds looking to make quick returns.
By August, non-commercial net long positions on Nymex averaged 47,500, more than 50% up from the previous year. Such funds are currently driving the market up by betting on a continued increase in the oil price.
But if the mood swings, they could just as easily help drive the price down.
More than anything, key oil market players look at the refined products situation in the US which is the world?s largest oil market.
''The American refining industry has failed to keep up with growing demand, especially for motor gasoline. There are not enough refineries and those that exist are ageing and subject to unscheduled shutdowns.
Furthermore, many are located on the US Gulf Coast which is prone to hurricanes, he remarked. Source
As a result, he continued, the US is forced to import as much as 1 million barrels a day of gasoline. This is one of the fundamental reasons why oil prices have remained high and one that OPEC can do little to remedy.
News that US refiner Motiva is planning to build a 300,000b/d refinery in Texas is good news for oil market stability.
In the meantime, demand for OPEC oil continues to grow. The OPEC secretariat believes world oil consumption will grow to around 85.7mn b/d, an increase of close to 1.3mn barrels over last year. After discounting the increase in non-OPEC production, demand for OPEC crude is likely to rise by 100,000 b/d to 31mn b/d. OPEC estimates that if current demand rises further, member countries will have to increase production. However, with fears of a weakening in US economic growth in 2008 growing, OPEC notes that demand could be lower than expected. Source
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