Markets

Kiran Stacey

Thursday’s dramatic drop in the price of oil and other commodities has left markets reeling.

The rout has continued on Friday morning, and at the time of writing, Brent is down at around $105 a barrel, from about $125 on Monday.

But with no obvious trigger for the sell-off, traders and analysts are offering varying interpretations as to why it is happening, and, especially, why now.

 

The US Energy Information Administration, distributor of the world’s most scrutinised and transparent energy statistics, is facing tough budget choices on account of the government’s ongoing debt ceiling fiasco.

Indeed, as the now hard-up EIA stated in a press release on Thursday, it’s come to the point where it’s even holding meetings to seek advice on how it can make its data gathering processes more efficient:

The U.S. Energy Information Administration’s Office of Energy Statistics will lead a discussion of tough choices faced by its energy data programs as a result of the FY11 budget compromise. Meeting attendees will have the opportunity to comment and offer feedback. Participants will hear from all Energy Statistics program groups including Electricity, Uranium and Renewables, Natural Gas and Coal, Petroleum and Biofuels, Energy Consumption, and Integrated Statistics. The presentations will focus on choices and challenges as EIA moves to improve collection efficiency, data relevance, and data quality. Participants will have opportunities to offer feedback, suggestions, and alternatives on EIA’s data coverage and statistical programs.

Given the scale of the original reaction to troubles at Japan’s Fukushima-Daiichi nuclear plant, it’s interesting to see the degree to which uranium ore prices have stabilized since March. Especially since the crisis itself is doing anything but.

Indeed, via RBC Capital markets on Wednesday:

Kiran Stacey

Oil production at the Sarir and Misla oilfields could restart within weeks, the Libyan National Transition Council has said.

The facilities above the wells had been shelled by Gaddafi loyalists, which brought production to a halt. But rebels are confident they could soon have oil flowing again down the pipeline to Tobruk, which they say has not been damaged. This would bring back an estimated 300,000 b/d of production, which could help the constrained oil markets.

The news, which was broken by Petroleum Economist, does not appear to have made a dent in the oil price though, which has bounced back after a shaky start this morning. That may be because the rebels have made similar predictions before, telling the FT in early March that production could restart in two weeks.

Kiran Stacey

Brent priceThe only thing more surprising than the comment from Ali Naimi, the Saudi oil minister, that the oil market is oversupplied, is how seriously the market appears to have taken it. The oil price has dipped sharply today, according to some at least, because of Naimi’s comments.

The evidence Naimi cites is that the Saudis cut output last month by some 800,000 barrels per day. Some of this may have come from reduced Japanese output, after the earthquake put many of its refineries out of action. But this demand is likely to return relatively soon – it certainly shouldn’t be viewed as gone from the market in the long term.

Kiran Stacey

In this week’s readers’ Q&A session, Amrita Sen, oil analyst at Barclays Capital, answers your questions.

In this second of two posts, she discusses drilling in the US, national oil subsidies and growing demand from the Middle East.

Earlier, she answered questions on whether speculation is driving up the oil price, whether such an increase could trigger another recession and when “peak oil” might occur.

(NB – Because of a very high volume of questions, we were not able to tackle every question submitted. Apologies if yours was not answered.)

Next week, Michael Bromwich, director of the US oceans regulator, will be answering your offshore-drilling queries. Email questions to energy.source@ft.com by the end of Sunday, April 10th.

But for now, over to Amrita:

Kiran Stacey

In this week’s readers’ Q&A session, Amrita Sen, oil analyst at Barclays Capital, answers your questions.

In the first of two posts, she discusses whether speculation is driving up the oil price, whether such an increase could trigger another recession and when “peak oil” might occur.

Later, she will discuss drilling in the US, national oil subsidies and growing demand from the Middle East.

(NB – Because of a very high volume of questions, we were not able to tackle every question submitted. Apologies if yours was not answered.)

Next week, Michael Bromwich, director of the US oceans regulator, will be answering your offshore-drilling queries. Email questions to energy.source@ft.com by the end of Sunday, April 10th.

But for now, over to Amrita:

Kiran Stacey

The global economic recovery is unlikely to be threatened by rising oil prices, Amrita Sen, oil analyst at Barclays Capital, has said.

Answering Energy Source readers’ questions, Sen said she expected a “longer term increase in prices” with Opec spare capacity stretched and energy demand continuing to rise. But unlike other forecasters, she said such a rise would not threaten demand, with eastern consumers willing to pay more for their energy and western ones dipping into their savings.

With oil firmly over $120 this week, Beijing responded by raising motor fuel prices on Thursday, the second time it has done so in a year.

More significant than the rises, however, is their restraint. The threat of inflation is such that Beijing has kept motor fuels much cheaper than the basket of international crude oils it uses as its reference.

Prices are up roughly 5 per cent at filling stations across the country. That means the cost of taking a truck-load of vegetables from southern China to Beijing has increased by Rmb326 ($50); and your average Beijing taxi driver is paying Rmb13 ($2) extra a day for his fuel, according to calculations by oil analyst He Wei of Bocom International.

Kiran Stacey

As the oil price continues to soar, taking it to record sterling highs, governments are starting to fret.

In the UK, the chancellor was last month pushed to offer a 1p cut in fuel duty to offset the impact of higher oil prices. The opposition claimed on Tuesday the cut has already been erased by the rise in oil since then, and it is no coincidence that on the same day, the energy secretary Chris Huhne met the Saudis to talk about what can be done on the supply side.

In the US meanwhile, Barack Obama has talked about weaning the country off its oil imports to improve energy security.

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