Sylvanus

Oil Price Rise: Demand - Supply - Speculation

On Jun 08 10:28 AM Sylvanus wrote:

> All oil is not the same. WTI (West Texas Intermdiate) is a light
> sweet crude oil. This is ideal for producing gasoline. It is easy
> to refine. Heavy sour crudes are less desirable, few refineries
> in the world are able to handle them and produce high grade, less
> polluting products. Just as Anthracite coal (almost gone) and low
> sulfur coals command a premium price over lignite (low grade coal),
> crude oil such as WTI, North Sea, Tapis, and Nigerian crudes set
> the benchmark and heavy crudes (Saudi and Iranian for example are
> discounted at a lower price.
>
> The refineries problems include fouling of the heat exchangers, additional
> unit operations (hydrotreatment) to remove sulfur components, cracking,
> and alkylation. All of which add to both the capital costs and the cost
> of refining to produce high quality products. These also increase the
> maintenance costs and mean additional downtime (reducing capacity utilization). <br/>
>
>
> Stringent environmental requirements, such as in California mean
> that Asian and European products can not be imported. Due to Diesel
> demand in Europe there is no surplus production. Heating oil in
> the northeastern US, has a higher sulfur content than what is allowed
> in diesel fuel. No new refinery has been built in the US during
> the past 30 years. Any wonder that fuel supplies at the pump cost
> more.
>
> Speculation has been blamed for the rise in fuel prices, but hedging
> activities in the futures markets are used to lock in low prices
> for organizations such as airlines. British Airways reported a profit
> of 1.5 billion dollars this year. But now expects to pay an additional
> 2.0 Billion dollars in the coming year despite hedging. The oil
> futures market is in Contango, which means oil contracts for 6 months
> and longer are priced higher then the current spot prices (physical
> oil for immediate delivery). Hence hedging has been made more difficult.
>
>
> Oil consumption is directly correlated with real growth in a country's
> GDP. World oil supply has not increased over the last three years,
> but the World total GDP has been increasing 3% per year.
>
> Oil is also priced in dollars and dollars are necessary to buy oil,
> the so-called Petrodollars. OPEC countries and Sovereign Wealth
> funds have been and are recycling petrodollars. trade surpluses,
> etc. for US Assets, such as US treasuries, CitiGroup, CDO s, CDS.
>
> Rockefeller Center, ..., Lehman Bros. and Bear Stearns, thereby propping
> up the US dollar. The ultimate cause of the weak dollar is US debt
> (now equivalent to 160% of US GDP) and the Federal reserve policies
> increasing the money supply.
>
> On the fundamentals, increasing demand, and slowly declining supply,
> oil will be more costly. To think otherwise, is merely wishful thinking.
>
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