The 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.
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 email@example.com by the end of Sunday, April 10th.
But for now, over to Amrita:
Amrita Sen, BarCap’s oil analyst, has kindly agreed to extend the deadline so more Energy Source readers will get the chance to ask their questions.
Amrita is one of the oil industry’s best known analysts, and is expert on everything from the effect of the Libyan conflict on oil supplies to what high oil prices mean for Opec and the wider economy.
Email all your questions to firstname.lastname@example.org by the morning of Tuesday, April 5th.
Many thanks for all your questions for Keith Parker, chief executive of the UK Nuclear Industry Association. His answers will appear on this site on Friday, April 1st.
Next week, the person in the hotseat will be Amrita Sen, Barcap’s oil analyst.
Amrita is one of the oil industry’s best known analysts, and will be taking your questions on everything from the effect of the Libyan conflict on oil supplies to what high oil prices mean for Opec and the wider economy.
Email all your questions to email@example.com by the end of Tuesday, April 5th.
With Brent Crude at $115 a barrel, it is little surprise to see the International Energy Agency talking in terms of oil remaining at $100 for 2011. And if it does, the organisation expects OPEC members to generate over $1,000bn in export revenues for the first time, as the FT reported on Wednesday.
Little wonder that Saudi Arabia and the Gulf states, which dominate the 13-nation cartel, can afford to splash out on big public spending plans to help quell social unrest. But it is expensive – Saudi Arabia now needs an oil price of $83 a barrel to balance its 2011 budget. And it may not work: history suggests that as countries grow richer, their citizens want rights as well as rewards.
Political scientists are still refining the theory but they generally accept its central tenets. The development of Europe, east Asia and Latin America has produced many examples of countries where, as incomes have risen, authoritarian regimes have been replaced with more democratic systems.
Over the past week, the oil price appears to have moved in sync with events in Libya. When Gaddafi looked close to quashing the revolution, prices dropped with the expectation that Libyan oil would start flowing again. Every time the rebels have been given a boost, oil prices have gone back up.
So last Tuesday, as pro-Gaddafi forces neared Benghazi, oil dropped 3.9 per cent. But when UN Resolution 1973 was passed on Thursday, it went up 3.5 per cent. It fell again after Gaddafi announced a ceasfire, but rose as evidence came in of his attacks on rebel-held towns. Today, as markets react to the concerted bombing campaign over the weekend, oil has continued to rise, taking Brent back over $115 a barrel.
As the oil price continues to surge, hitting $109 a barrel, the oil price movement for 2011 has begun to look very much like that in 2008, when the price ended up hitting $145, and became a contributing factor to the slump.
But Leo Drollas, chief economist at the Centre for Global Energy Studies, thinks it won’t, even though there are many similarities with the situation in 2008, including high oil demand.
It is a very dangerous game to try and predict what will happen next in the Middle East and North Africa at the moment, so I report this with all the usual caveats. But John Roberts, an energy security specialist at Platts, has been watching the region for a long time, and he thinks that the possible removal of Muammar Gaddafi blows apart a lot of long-held assumptions about the region.
The key assumption as far as Libya was concerned was that with high oil revenues and a small population, Gaddafi was safe. If trouble started, he could always bribe people into remaining quiet – as he appears to have done recently, reportedly increasing wages and loans on offer to Libyans.