The energy sector is where the action is, oil and gas in particular. Our future depends on it. And, in light of the peak oil theory, fossil fuel appears to be an endangered species. We’ve already experienced the effects of oil shortages. The oil we use in one year here in the US, took nature 14,000,000 years to create. The US continues to grow more dependent on foreign oil as our consumption increases.
For more than 40 years, every US President has promised to make the country energy independent. During the same period, we’ve gone from importing 24% of our oil to importing over 65%. Every day, around the world, 85 million barrels of oil are produced. We use 21 million barrels daily here in the US. That’s 25% of the world’s oil demand being used by 4% of the world’s population.
Ultimately, prices in the world oil market are set by the fundamentals of supply and demand. However, crude oil prices at any given moment reflect a wide range of considerations that goes beyond immediate conditions in the market. These considerations include expectation about future conditions and events, which include world demand, political risk and war, among others.
Since 2004, the price of oil has risen dramatically while the world oil market faced tough conditions. World oil prices initially rose to $30 a barrel from $10 a barrel. Expectations about rising investment in oil and gas development in Nigeria, Russia, Sudan, Venezuela, the US and in other places turned into an environment where projects were postponed or contracts terms were changed. Superimposed on this supply situation, has been the rising demand in China, India and other parts of the developing world.
In the US, polices have restricted opportunities to expand conventional supplies from Alaska and prospective offshore and onshore provinces in the Lower 48 have contributed to the high price of oil along with the conflict in Nigeria, delays in OPEC capacity, and resource nationalism in Venezuela.
The crude oil market is now under pressure from the December 31, 2010 high of $91.38.
In recent weeks, the market was driven higher on the perception that the economy is recovering and therefore would boost demand for oil in the future. The hope of recovery was reinforced with the recent drop in the December unemployment rate to 9.4%, it's the lowest level in 19 months and is down from 9.8%. Last week’s crude oil inventory illustrated the Dec 31 price movement with the stockpiles drawdown.
I hope you can see why I find the oil and gas sector engaging. It’s an intellectual roller coaster, which rides on some of my favorite subjects.
No comments:
Post a Comment