http://www.wikinvest.com/commodity/Oil#Spot_Prices_versus_Futures_Prices
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Why Oil Prices Rise or Fall
outlook stresses increased output
According to the IEA, global output of crude needs to increase significantly in 2011 in order to meet faster-than-expected oil demand growth.[23] In its January report, the IEA increased estimated demand for 2010 and 2011 by 320,00 barrels/day.[24] As of January 2011, the IEA predicts a rise in demand of 1.4 million barrels a day in 2011 compared to estimated 2010 levels.[25]
The direct consequence of tighter oil supplies is higher crude prices; a consequence the IEA believes will stymie the global economy.[26] According to the IEA, if oil prices reach and remain at $100/barrel in 2011, global expenditures have the potential of rising to 5% of GDP, a level associated with economic problems in the past. The IEA plans to pressure OPEC to lift its production ceiling as a result of these findings, but OPEC has disagreed with the IEA's predictions.[27] While the IEA believes that global inventories are not sufficient to meet demand without an increase in production levels, OPEC believes the IEA's estimates of inventories are incorrect and does not expect as drastic an increase in demand relative to supply as the IEA does. Nevertheless, global production levels have the potential of being crucial to the price stability of crude oil in 2011.[28]
Supply Shocks
Production Cuts
The global oil supply is dependent on the ability of oil companies to produce and the willingness of oil-exporting countries to export. Historically, periods of oil price spikes have been caused by oil-exporting countries placing embargoes on certain countries. In 1973, for example, the world's largest oil cartel, OPEC, placed an embargo on oil exports to the Netherlands and the United States, in response to the countries' support of Israel in the Yom Kippur War; the price of oil acquired by refiners increased by approximately 100%, and the U.S. experienced widespread shortages.[29] In 2007, however, despite a 57% increase in prices, the amount of oil exported by the world's top exporters fell 2.5%. Demand for oil in the world's six largest exporters (Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar) increased by more than 300,000 barrels, while their exports fell by over half a million barrels.[30] In this case, growing demand in each company acted as a natural embargo, forcing them to meet their own needs before exporting to the rest of the world.
Violence Against Producers
Violence in unstable regions can cause oil prices to be volatile because of geopolitical events affecting the ability of upstream oil companies to produce. Terrorist and political attacks can damage drilling rigs or the transportation and refining networks -- including pipelines, shipping facilities, and refineries -- that bring oil from where it is extracted to the consumer. During the spring of 2008, for example, Nigerian rebels initiated attacks on the oil majors' pipelines and deepwater drilling rigs in the country. Despite the fact that OPEC's lead producer, Saudi Arabia, announced it would increase production by 2%, a rebel attack on one of Shell's deepwater rigs sent prices to $136.[31]
Weather
Strong hurricane seasons can damage offshore oil platforms, reducing the amount of oil produced. Supply can also be artificially reduced or increased by government taxes or subsidies on oil production. they can also have a adverse affet on infrastructure, restricting levels of supply
Transportation Bottlenecks
When there are problems with the pipelines that transport oil, it can't get to market; this effectively reduces the supply of crude oil to the world's refiners, causing the supply of refined products to fall. When supplies fall, prices rise. On March 28th, 2008, the day after the bombing of one of Iraq's primary export charges, Brent crude rose on the London exchange by $1.01.[32]
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References
↑ Fast Facts About Coal
↑ RigZone: Offshore Rig Day Rates Page, Accessed May 05, 2008
↑ Energy Current: "Deepwater rig day rates hit new high", November 9th, 2007
↑ IHT: "Landfill sites are being viewed as mines with buried riches"
↑ SeekingAlpha: Stocks to Watch if Crude Oil Heats Up
↑ zFacts: "Crude Oil Prices Drive up Cost of U.S. Addiction"
↑ zFacts: "Current Gas Prices and Price History"
↑ BBC News: " Oil dips to $121 as reserves grow"
↑ zFacts: "Current Gas Prices and Price History"
↑ Kiplinger: "Southwest Airlines: Best of the Worst"
↑ Research and Recap: "High Oil Prices Eroding Asian Manufacturing Advantage"
↑ Cheaper Petrol Party: Glossary
↑ Energy Bulletin: "Shell, Exxon tap expensive oil sands & gas, oil reserves dwindle."
↑ Cheaper Petrol Party: Glossary
↑ BBC: " Oil markets explained"
↑ Ezine Articles: "The Changing Meaning Of Oil Price Benchmarks"
↑ Wikipedia: Brent Crude
↑ Wikipedia: West Texas Intermediate
↑ Ezine Articles: "The Changing Meaning Of Oil Price Benchmarks"
↑ Wikipedia: Dubai Crude"
↑ OPEC: Basket
↑ 22.0 22.1 22.2 22.3 Daly, Sean, "Graham Corp.: In the Sweet Spot of the Energy Bull-Market," SeekingAlpha.com, January 10, 2011
↑ WSJ: IEA: Oil Output Needs to Increase, January 2011
↑ WSJ: IEA: Oil Output Needs to Increase, January 2011
↑ WSJ: IEA: Oil Output Needs to Increase, January 2011
↑ WSJ: IEA: Oil Output Needs to Increase, January 2011
↑ WSJ: IEA: Oil Output Needs to Increase, January 2011
↑ WSJ: IEA: Oil Output Needs to Increase, January 2011
↑ Wikipedia: "1973 oil crisis"
↑ The Wall Street Journal: "Oil Exporters Are Unable To Keep Up With Demand"
↑ The Independent: "Oil continues to rise as Nigerian rebels attack Shell platform 120 miles offshore"
↑ BBC: " Oil hits $108 on pipeline blast"
↑ [1]
↑ MarketWatch: "Is offshore drilling a viable solution to energy needs?"
↑ The Independent: "Saudi King: 'We will pump more oil'"
↑ WSJ: "Limits Put on Some Oil Contracts On ICE Amid Outcry Over Prices"
↑ MarketWatch: "Squandered opportunities?"
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