This commentary is from USAK’s Energy Review Newsletter
http://www.turkishweekly.net/energyreview/TurkishWeekly-EnergyReview6.pdfTo subscribe email to
energyreview@turkishweekly.netThis week the upward trend continued in the oil markets and oil prices increased slightly. West Texas Intermediate (WTI) crude oil became $60.1 per barrel and Brent oil $57.59 on Friday. Analysts claim that Nigeria’s statement as being the sixth biggest member of OPEC that it will fulfill its promises and go for oil cuts was effective in this price increase.
Moreover, “Occidental Petroleum Corp., the fourth-biggest U.S. oil company, said 120,000 barrels a day of output has been lost after a fire at its Elk Hills field in California. It’s the seventh-largest field on the U.S. mainland.” (Bloomberg)
In the regions of Norway, Mexico and Canada there are problems in the oil supply. In a way, 2007 has not started so well for the oil supply as it had in demand. As can be remembered mild weather conditions caused oil prices to decrease and it even became $49.90 in the first half of the January. However, weather conditions is back to normal in USA and with the statements of Saudi Arabia and Nigeria that they will comply their promises and go for supply cuts; caused oil prices to increase almost 20% in a month.
Source: Financial Times and EIA
OPEC countries had decided to cut supply beginning from 1 November 2006, for 1.2 million barrels per day and 500,000 barrels per day beginning from 1 February 2007. However, according to EIA’s estimations the oil cuts of OPEC was only 0.6 million barrels on the fourth quarter of 2006 and it would be 0.3 million barrels (around 60% of the targeted amount) after the February cuts. As can be remembered in January analysts claimed that OPEC members’ not implementing the cut decisions also helped prices to decrease to $50 levels. We will wait and see the effects of this second supply cut in the short term.
The other indicators stay the same for the oil markets. In the US, crude oil stocks are around 324478 thousand barrels and well above the last five years’ averages for the same period of the year. On the other hand, this is the same for gasoline and heating oil stocks, too. As can be seen from the below chart the only change is that heating oil stocks is decreasing and its price is increasing when compared to last month due to increasing demand for heating oil as a result of cold weather.
Source: Energy Information Administration
It is a fact that the conflict between Iran and the US has not resolved yet and this affects risk perceptions negatively. Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo clearly defines the current situation in the oil markets "It seems traders are looking at the short-term — heating oil demand and geopolitical tensions — when they should be looking at the medium and long-term…We have to remember that the geopolitical risks, especially in relation to Iran, have not really been realized in terms of affecting supply, and that the winter season will be over in a month" (The New Anatolian)
As stated above the US has sufficient oil stocks when compared to previous years data and in accordance with this analysts claim that the tension on the oil prices could decrease a little this week. According to a Bloomberg Survey 17 of 48 analysts expect a decline in oil prices whereas 16 of them expect a rise and 15 expect a little change.
Sources:
For your comments:
