Brent barrel petroleum spot prices, May 1987 – April 2011. 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 petroleum as quoted in news generally refers to the spot price 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.

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 and 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]

History

Long-term oil prices, 1861-2008 (orange line adjusted for inflation, blue not adjusted). Due to exchange rate fluctuations, the orange line represents the price experience of U.S. consumers only.


Recent price history

New York Mercantile Exchange prices for West Texas Intermediate 1996 - 2010

A recent low point was reached in January 1999 of $17 (all prices are in US$ per barrel), after increased oil production from Iraq coincided with the Asian Financial Crisis, which reduced demand. Prices then increased rapidly, more than doubling by September 2000 to $35, then fell until the end of 2001 before steadily increasing, reaching $40–50 by September 2004.[5] In October 2004, light crude futures contracts on the NYMEX for November delivery exceeded $53 and for December delivery exceeded $55. Crude oil prices surged to a record high above $60 in June 2005, sustaining a rally built on strong demand for gasoline and diesel and on concerns about refiners' ability to keep up. This trend continued into early August 2005, as NYMEX crude oil futures contracts surged past $65 as consumers kept up the demand for gasoline despite its high price. Crude oil futures peaked at a close of over $77 in July 2006, and in December 2006 at about $63. That is just about where they began the year 2006.[6] In September 2007, US crude (WTI) crossed $80. Multiple factors caused this high price. OPEC announced an output increase lower than expected.[7] US stocks fell lower than experts predicted[8], changes in federal oil policies [9], and six pipelines were attacked by a leftist group in Mexico.[10] In October 2007 US light crude rose above $90 for the first time, due to a combination of tensions in eastern Turkey and the reducing strength of the US dollar.[11]

On January 2, 2008, a single trade was made at $100[12], but the price did not stay above $100 until late February.
Oil prices for Brent in US$ and Euro

Oil broke through $110 on March 12, 2008[13], $125 on May 9, 2008[14], $130 on May 21, 2008 [15], $135 on May 22, 2008, $140 on June 26, 2008 and $145 on July 3, 2008[16]. On July 11, 2008, oil prices rose to a new record of $147.27 following concern over recent Iranian missile tests.[17]

On July 14, 2008, President George W. Bush lifted the executive order removing the ban on offshore drilling that had been enacted by President George H. W. Bush in 1990 and renewed by President William J. Clinton. This action was viewed initially as only symbolic or political[18] since the 1982 Congressional moratorium on offshore drilling was unaffected by President Bush's action.[19] Oil prices declined by more than $20 over the next two weeks, settling around $125 a barrel on July 24, 2008.[20] A strong contributor to this price decline was the drop in demand for oil in the US. Miles driven there in a month were down in March–May 2008 compared to 2007, with the 4% decline in May being the largest drop in history.[21] Oil further dropped down to its lowest price in 3 months, at around $112 a barrel, on August 11, 2008[22], and on September 15, oil price fell below $100 for the first time in seven months. On September 24, 2008, Speaker of the House, Nancy Pelosi allowed the 26-year moratorium to expire.[23] On October 11, oil fell as much as $8.97, or 10.17% to $77.70 per barrel as global equities slid.[24]

Oil traded below $70 on October 16, 2008. On December 21, 2008, oil was trading at $33.87 a barrel, less than one fourth of the peak price reached four months earlier. Prices did not rebound once 2009 started. Instead, after initially climbing above $48, prices descended by mid-February to below $34, hurt by forecasts for further declines in world demand. Through March and April 2009, oil traded at about $40 per barrel. By August 2009, prices returned to $70 a barrel.[25]

Benchmark pricing

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.[26] 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.[26] The current reference, or pricing markers, are Brent, WTI , and Dubai/Oman.[26]

Market listings

Oil is marketed among other products in commodities markets. See above for details. Widely traded oil futures, and related natural gas futures, include:[27]

  • 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

Most of the above oil futures have delivery dates in all 12 months of the year.[28]

Speculation

The surge in oil prices in the past several years has led some experts to argue that at least some of the rise is due to speculation in the futures markets.[29][30] This has led to an investigation, which reached an interim conclusion that speculation was largely not responsible for the rise. Economist James K. Galbraith believes that much of the rise is due to the "Enron loophole" drafted in a rider by former Texas senator Phil Gramm, which allowed energy futures to avoid Commodity Futures Trading Commission oversight. Galbraith cites Masters, a hedge fund manager, who observed that index speculation tied to commodities by pension funds and other investment vehicles rose from $13 billion in 2003 to $250 billion in 2008. Galbraith observed that with Goldman Sachs predicting a rise in the price to $200 and Gazprom $250, suppliers may react to the rise by restricting supply until they can sell their product at a higher price.[31] In 2009, Seismic Micro-Technology conducted a survey of geophysicists and geologists about the future of crude oil. Of the survey participants 80 percent predicted the price for a barrel of oil will rise to be somewhere between $50 and $100 per barrel by June 2010.[32] Another 50 percent saying it will rise even further to $100 to $150 a barrel in the next five years.[32]

Oil prices could go to $200- $300 a barrel if the world's top crude exporter Saudi Arabia is hit by serious political unrest, according to former Saudi oil minister Sheikh Yamani. Yamani has said that underlying discontent remained unresolved in Saudi Arabia. "If something happens in Saudi Arabia it will go to $200 to $300. I don't expect this for the time being, but who would have expected Tunisia?" Yamani told Reuters on the sidelines of a conference of the Centre for Global Energy Studies (CGES) which he chaired on April 5th 2011.[33]

Futures investigation

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.[34] This announcement has received wide coverage in the financial press, with speculation about oil futures price manipulation.[35] [36] [37]

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 was continues to analyze commodity markets and intends to issue further findings later in the year.

See also

References

  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. Light Crude Oil (CL, NYMEX): Monthly Price Chart
  6. Topic Galleries - baltimoresun.com
  7. OPEC Press Release 11 September 2007 , OPEC
  8. This Week In Petroleum, EIA
  9. Andrews, Edmund L. (June 18, 2007). "Democrats Press Plan to Channel Billions in Oil Subsidies to Renewable Fuels". The New York Times. http://www.nytimes.com/2007/06/18/washington/18oil.html. Retrieved May 22, 2010.
  10. Mexican oil, gas pipelines hit again by explosions, Reuters
  11. Oil prices touch above $90 level, BBC News
  12. Oil price reaches $100 for 1st time: Experts wonder how high the cost of crude can go before putting a crimp in spending and the nation's economy
  13. "globeandmail.com: energy". The Globe and Mail (Toronto). http://www.theglobeandmail.com/servlet/story/RTGAM.20080312.woilprices0312/BNStory/energy/home.
  14. Energy, Oil & Gas
  15. AFP: Oil spikes above $133 on tighter US supplies
  16. Oil prices reach new record high
  17. Oil hits new high on Iran fears. BBC News 11 July 2008
  18. "Bush Lifts Drilling Moratorium, Prodding Congress". The New York Times. July 14, 2008. http://www.nytimes.com/2008/07/14/washington/14drillcnd.html.
  19. "'Drill, baby, drill' process has begun". CNN. December 20, 2008. http://articles.cnn.com/2008-07-14/politics/bush.offshore_1_offshore-oil-drilling-fadel-gheit-exploration?_s=PM:POLITICS.
  20. Oil prices drop below $125 on weak demand_English_Xinhua
  21. The law catches up to oil - MarketWatch
  22. Musante, Kenneth (August 5, 2008). "Oil settles just above $119". CNN. http://money.cnn.com/2008/08/05/markets/oil/index.htm?cnn=yes. Retrieved May 22, 2010.
  23. "Congress OKs stop-gap spending, ready to go home". CNN. September 30, 2010. http://articles.cnn.com/2008-09-24/politics/congress.drilling.ban_1_drilling-policy-stimulus-package-funding-bill?_s=PM:POLITICS.
  24. http://uk.news.yahoo.com/afp/20081010/tbs-oil-price-dives-to-77-as-global-equi-5268574.html
  25. http://www.msnbc.msn.com/id/12400801/
  26. 26.0 26.1 26.2 Script error
  27. "Bloomberg Energy Prices". Bloomberg.com. http://www.bloomberg.com/markets/commodities/energyprices.html. Retrieved 2008-06-11.
  28. List of Commodity Delivery Dates on Wikinvest
  29. "Oil Prices Are All Speculation" by Ed Wallace in Business Week June 27, 2008
  30. "‘Perhaps 60% of today’s oil price is pure speculation’" article by F. William Engdahl in Global Research May 2, 2008
  31. Galbraith JK. (2008). How to Burn the Speculators. Mother Jones.
  32. 32.0 32.1 E&P Magazine, Geologists positive about future of oil and gas, June 10, 2009
  33. http://af.reuters.com/article/energyOilNews/idAFLDE7340MU20110405?pageNumber=3&virtualBrandChannel=0&sp=true Retrieved April-07-2011
  34. "CFTC Announces Multiple Energy Market Initiatives". CFTC. Release: 5503-08. May 29, 2008. Archived from the original on 2008-06-01. http://web.archive.org/web/20080601035005/http://www.cftc.gov/newsroom/generalpressreleases/2008/pr5503-08.html. Retrieved 2008-06-11.
  35. "CFTC in talks to plug the 'London loophole'". The Financial Times. 2008-06-10. http://us.ft.com/ftgateway/superpage.ft?news_id=fto061020081403134150&page=2. Retrieved 2008-06-11.
  36. Mufson, Steven (2008-05-30). "Probe of Crude Oil Trading Disclosed". Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2008/05/29/AR2008052903627.html. Retrieved 2008-06-11.
  37. "Government investigates oil markets". CNN Money. 2008-05-30. http://money.cnn.com/2008/05/29/markets/oil_markets_investigation.ap/index.htm?postversion=2008052913. Retrieved 2008-06-11.

External links

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