AMSTERDAM (ResourceInvestor.com) -- Crude oil prices have hit a new all-time record high, after breaking through the $100 per barrel mark on January 3.
NYMEX futures reached a level of more than $100 on Thursday, based on increased violence in the Niger Delta of Nigeria that removed 500,000 barrels per day (bpd) from the market, and a mixed report coming from the U.S. Department of Energy (DoE), which indicated lower than expected strategic oil stocks in the U.S.
The U.S. DoE reported that overall stocks had dropped by more than 4 million barrels, which according to analysts, is largely based on the increased refining of crude oil due to winter demand. This has been supported by other reports that indicated a higher refining utilization in the U.S.
Current winter weather in major parts of the EU has also slightly contributed to the price increase. Until now, the crude oil has slightly settled for a price level of the upper $99 per barrel, but more new price increases are on the horizon.
In the coming days, it will become clear whether the market will also react to negative news coming from OPEC’s largest oil producer, Saudi Arabia - the country indicated that the planned start up of the Khursaniyah oil field is being delayed. Officials of the Saudi state-owned oil giant Saudi Aramco have informed the press that it is in the process of bringing on stream its 500,000 bpd Khursaniyah oil field, which was originally due for completion in late 2007, but no specific dates have been given for a new start-up date of production, and the market is eagerly awaiting the success.
As Saudi Arabia is still the kingpin of world oil, its crude oil production projects are eagerly awaited, as they are the main source for new production to counter still growing global demand. The development covers the onshore Abu Hadriyah, Fadhili and Khursaniyah fields, and will also add capacity to process 1 billion cubic feet a day of associated gas and 80,000 bpd of condensates.
Saudi Arabia, currently producing around 9 million bpd, is planning to reach a level of 12.5 million bpd production capacity around 2010. The ongoing problems with Khursaniyah could not bode well for other new operations.
In a reaction to questions asked by the press, Saudi Aramco reiterated that it still is able to put another 1 million bpd of light Arab crude on the market. This statement, however, stands contrary to other analysis, which shows that the country is producing at its peak levels already. The same situation, as reported before, is the case for most other oil producers, such as Nigeria, Iran, Venezuela, Algeria and Libya.
The only possible relief could come from OPEC’s new member, Angola, where additional production is scheduled to come on-stream in 2008. The latest figures show that the country at present is exporting more than 90% of its total production of 17 million bpd.
Angola's Oil Minister Desiderio Costa stated that worldwide demand for Angolan crude has been unexpectedly high, pushing the country to increase production as much as possible. However, Costa reiterated that additional production volumes would only become available as much as the national energy situation would allow. In other words, production will be based on a responsible management of its own oil resources available.
Before the end of 2008, Angola expects to produce around 1.8 million bpd. At the same time, new blocks will come available too, such as the central block of Cabinda zone, Kwanza onshore zone blocks, shallow waters block 9, deep waters blocks 19, 20 and 21, ultra-deep waters blocks 46, 47 and 48.
But not just OPEC production is under pressure. China, currently the world’s second largest oil consumer, and minor oil and gas producer, has reported that its main oil field, Daqing, which is located in the northeast, has produced 41.7 million tonnes of oil and 2.6 billion cubic metres of natural gas in 2007.
The China National Petroleum Corporation (CNPC) reported that volumes have been only slightly above the production target of 41.62 million tonnes of oil, while, and more disconcerting, volumes have dropped by 4% in comparison to the 2006 production. Total production of the Daqing oilfield is already dropping - the 47 year-old field reached its peak in 1975. In 1975, Daqing produced more than 50 million tonnes per year.
News sources reported that China's oil output is expected to have reached 186 million tonnes in 2007, which is only an increase of 1.5% in comparison to 2006, while demand has grown with double figures.
On the horizon, world crude market developments will continue to show an increased tendency for an upward price. Even thouth some speculation is in the current price setting, probably between $5 and $10 per barrel, market fundamentals are indicating further price increases.
Some analysts have indicated that in 2 to 3 years, price levels could be hitting $200 per barrel, if no economic crisis emerges. This doomsday scenario, however, cannot yet be substantiated.
Based on current fundamentals, and the fact that a psychological barrier ($100) has been broken, increases are leaning towards a new barrier of $125. No real factors are available to substantiate when this is feasible, but a harsh winter in the northern hemisphere, in combination with increase violence and instability in OPEC countries, would surely push prices towards the $110 per barrel mark very soon.
Profit taking can put a temporary halt to this but in general, prices will continue to go up.
