Rafael Reyes on Friday, 23 April 2010 15:51
Oil prices surge
With the news of a strengthening economy crude oil prices rose to the highest price of the year closing at $86 per barrel. This is far below the 2008 peak of $140 per barrel but a further climb in the price looks very possible.
A catalyst for Monday's 2 percent price rise was better job-market news. The US added 162,000 jobs in March, according to a Friday report from the Labor Department. Oil markets had been closed for Good Friday.
Also, the energy-intensive manufacturing sector has been reviving faster than many expected. …
Forecasters are divided over how much momentum oil prices will have. The run-up could continue to $90 or $95 a barrel or higher, some say. Factors that could keep prices rising include more demand from China, possible escalation of Western-nation tension with Iran, and market speculation as investors look for hot trends to ride.
Other factors, though, could reduce the potential for a 2008-style spike in oil prices. Unemployment in the United States, a key energy-consuming nation, is still nearly 10 percent – and even many Americans with jobs are still feeling the financial effects of the recession (such as slow pay raises and shrunken home values).
Unemployment is likely factoring in the continued slide of gas consumption in California, now in the forth year of decline. The complex picture translates to uncertainty on oil and gas prices as we head into what is normally a mid-year price increase. The picture is further complicated by varied perspectives on what will happen in emerging markets like China. Anticipation that oil consumption growth would continue to grow dramatically are being tempered in some reports.
“Only 19 percent of China’s energy needs are met by oil, and country’s oil dependence is weakening. We expect sharply lower consumption growth (0.9 percent in 2009, 1.3 percent in 2010, and 1.2 percent in 2011) due to economic rebalancing and efficiency improvements,” said the IIFL.
IIFL said that China’s oil demand growth rate has been kept lower by its quest for energy security and improved efficiency. “There has been a structural shift towards other energy sources, and the government is redoubling its policy efforts to reduce energy intensity,” the IIFL said.
The overarching theme of peak oil production continues to gain momentum. The implication in the short run is that the gas price context for the introduction of electric vehicles later this year remains unclear. But longer term the price of gas is likely to drive people to alternatives.