Day after day, world oil prices continue to rise to new records. Oil prices are continuing to increase, supported by Opec’s decision to rollover targets until the end of summer 2008, strong distillate markets and geopolitical tensions.
Persistently weak gasoline and fuel oil cracks are forcing distillate cracks higher to encourage marginal refiners to meet strong European gas and oil demand, according the International Energy Agency.
Underpinned by strong projected global oil demand for the remainder of 2008, supply concerns and market speculation, the oil price per barrel could breach $130 during the course of this year. Oil product demand is projected at 87.5 million barrels per day.
Downward pressure resulting from weaker economic growth in key Western markets, such as the US, will be offset by continued strong demand in growing markets such as China and India.
Global oil supply increased in February to 87.5 million barrels per day with higher January Opec crude supplies lifting the base. Opec crude supply fell by 120,000 barrels per day to 32.1 million barrels per day in February.
The Middle East, Gulf and West African output fell but was partly offset by an increase in Iraqi supply. Global refinery crude throughput remains under downward pressure from poor refining economics, seasonal maintenance and operational problems.
Economic run cuts continue to hamper activity in Europe and the Pacific, while year-on-year growth in the first quarter of 2008 is being driven by China, the former Soviet Union and Asia.
The ailing dollar has also fuelled a spike in world oil prices as crude is priced in dollars and has become cheaper to buy for purchasers holding stronger currencies, such as the euro.
New York’s main oil futures contract, light sweet crude for delivery in April, closed at a record high of $109.92 per barrel after trading as high as $110.20. The US dollar, meanwhile, plunged to an all-time low against the euro following publication of strong eurozone industrial production figures.
The oil price hikes are fuelling inflationary pressures, especially in the United States, which is also being buffeted by other financial and economic challenges.
Opec’s daily basket price, which is published with a 24-hour delay and serves as the reference price for Opec, recently rose to a record $100.57. The basket comprises 13 different crudes from all countries in the organisation, which produces about 40 per cent of global oil supplies.
Opec is under intense pressure from the US to increase its production but declined to do so again last week at a meeting in Vienna.
A surprise drop in US crude inventories has helped spark a record-breaking run. Investors have pumped cash into commodities amid resurgent jitters about rising global inflation and a potential US recession, and with the dollar plunging to a series of record lows.
Funds, particularly hedge funds, are also pushing the oil price higher as traders plough money into oil and other commodities. Traders and speculators are fast realising what a rare and special commodity oil actually is.
87.5: Million barrels is the projected oil product demand per day this year
40%: Of the global oil supplies is produced by Opec