Financial Express - 15/4/2006
The recent spike in global crude oil prices, with the price crossing the $70 mark, is not surprising given the constraints posed by the oil market, both at the production as well as consumption end. Over the year, the happenings in the United States, a large consumer of hydrocarbons, are likely to put pressure on crude oil and product prices.
That apart, gasoline consumption is expected to grow solidly following weak growth in 2005; environment barriers are being raised, with sulphur content sought to be reduced; and thirdly, phase out of methyl tertiary butyl ether (MTBE) from transportation fuels.
On the supply side, the world’s second largest crude oil supplier, Russia, had to sharply reduce crude oil supplies from Siberia owing to bad weather earlier this year. Further, export taxation is hindering maintenance of existing oil producing fields and new field developments. On the political front, tensions in West Asia due to Iran’s resistance to West’s insistence on capping its nuclear programme are fueling crude oil prices.
The political climate is Africa, where several American and UK firms are operating oil fields, is still unsettled. While this appears to be the broad outlook in the short to medium term, there is hope that towards the end of 2006, crude oil prices will soften for a short period. This, since during the corresponding period last year, Hurricane Katrina drove up refinery margins and consequently retail prices.
The Energy Information Administration, an arm of the US government, expects refinery capacity to rise 2.5% as against 1 per cent recorded on an average over the last ten years. Nonetheless, given the world’s hunger for energy, the outlook remains weighted in favour of oil producers.