AMERSTERDAM (ResourceInvestor.com) -- Global oil prices are heading toward another increase the coming days. A major storm developing in the Gulf of Mexico, a gas explosion in the UAE and a possible conflict between Total [NYSE:TOT] and Iran will put renewed pressure on current oil price levels.
A new storm developing in the Gulf of Mexico is causing Asian oil traders to expect further price increases due to possible closings of major oil fields in the area. The chance of an unexpected oil output reduction will put additional pressure on American oil production and import levels, which already are showing constraints.
Oil prices in New York and Brent crude already have moved up several dollars, showing a tendency to surge even through the $85 per barrel barrier for the NYMEX crude. Brent crude also has gone up, breaking through the magical $80 per barrel barrier. Analysts are worried that the Gulf of Mexico storm will only increase already constrained market fundamentals, as the OPEC production quota increase of 500,000 barrels per day in the past weeks is seen as insignificant. At the same time, several OPEC producers have indicated that will not even be able to produce up to the levels approved by OPEC.
The U.S. National Hurricane Center has warned that a current tropical depression, which is heading towards the coast of Mexico, could grow into a tropical storm. Other analysts have reported that American refinery run rates have dropped, indicating that there is a bottleneck in the system which has not yet been recognized fully by the market. If no measures are being taken - and refinery production keeps under stress - the American heating oil market will be severely pressured. Possible effects for the European market are already expected, as a fall in supply in the U.S. is normally covered by increased imports from European plants. A tighter market could be the result, pushing most prices of products to higher levels than expected already.
The current price developments come unexpectedly, as the U.S. Department of Energy had reported recently that there has been an unanticipated build-up of stocks. However, these normally positive figures, which would have caused prices to fall, only had a temporary effect. Several American analysts have indicated that the unexpected price increase - before the news of the Gulf storm was reported - has come because funds have taken a closer look at the statistics and emphasized the draw in Cushing barrels. Funds appear to have been going on a buying spree. As reported in the press, when front-month prices are higher than months further out, it as seen as an indication that immediate supplies are tight. The situation, known as backwardation, also encourages commodity investment funds to buy crude because it reduces the cost of rolling over near-month contracts to the next month as they expire.
At the same time as the United Arab Emirates has to cut its oil production by around 600,000 bpd due to scheduled maintenance in November, another setback to the country's production level occurred. The Abu Dhabi National Oil Company (ADNOC) reported that a minor gas leak has triggered a shutdown that will cut average oil output in the UAE by 40,000 bpd in September. The UAE is the world's sixth-largest oil exporter and produced around 2.56 million bpd of crude in August.
The oil market is also keeping a wary eye on developments surrounding Iran, as the latter is not only threatened by UN Sanctions or even a military confrontation with the U.S., EU and Israel. Tehran even has put more oil on the fire, as the government reiterated that it will kick French oil and gas major Total out of the South Pars field development project. As reported, Iran has warned France it was prepared to go ahead with the major gas project. The main point of the conflict currently is Total's unwillingness to put in place the final investment decision for the South Pars project. Iran's Minister of Oil Gholam Hossein Nozari stated that "if Total does not come here, right here, the Pars LNG contracts will be handed over to capable Iranian hands for them to carry out." Total's project would entail phase 11 of the giant South Pars gas field, where it would be investing to produce liquefied natural gas (LNG) for export and to build a liquefaction plant. Analysts have also stated that growing French confrontational policy has angered Iran. The new French president Nicolas Sarkozy has stated that European states should take measures outside the regime of UN sanctions to put pressure on Tehran over its nuclear program. Sarkozy has called upon French and European companies to leave Iran and not to bid for new projects until all issues are solved.
