Denhman Ogilvie Oil Insight

Online, December 19, 2011 (Newswire.com) - Here, Dehnman Ogilvie reports the very latest oil price movements, with predictions from expert commentators and explanations of why the oil price is moving in the way it is.
THE LATEST ON OIL PRICES

A deterioration of relations between Opec member Iran and the West over the oil producer's nuclear program undermined supply forecasts this week, keeping oil prices elevated despite concerns over the global economy.

Brent Crude oil was at $110 a barrel, with U.S. Crude (WTI) at $102, after reports that the European Union is considering a ban on Iranian oil exports which may interrupt oil supply.

Iran produces in the region of 4,245,000 barrels of oil a day, according to the latest BP statistical review of world energy.

The British embassy in Tehran was stormed by protestors recently. In response, diplomats working at the Iranian embassy in London were expelled last Friday.

The U.S. Senate last week voted to penalize financial companies which did business with Iran's central bank, because of worries over the country's nuclear program.

And on Sunday, Iran's official Irna news agency reported it had shot down an unmanned US drone aircraft.

Christophe Barret, global oil analyst at Credit Agricole CIB, told Reuters: 'The risk of disruptions to oil supplies remains high.'

The risk of reduced Iranian supply has offset demand fears arising from the deepening crisis in the Eurozone, which threatens to knock global economic growth.

BP chief Bob Dudley warned today that the fragile economic recovery could be negatively affected by high oil prices, especially in the United States.

Oil prices have remained above $100 for most of 2011 thanks largely to strong growth in Asia and instability in producing countries such as Iran and Libya.

Speaking at the world's largest oil and gas producers gathered in Qatar, a Denhman Ogilvie analyst said: 'It is important in the current situation of a fragile global economy and I think right now we are probably walking a fine line.

'It is impossible to say what price exactly will affect the economic recovery but we do know which regions will be affected most', he said, adding that the United States was most vulnerable because of its slim fuel tax buffer to soften the blow of rising oil prices through pump price tax cuts.

'There is a risk that in the world's largest economy and largest oil consumer, the United States, could be hit by a lack of supplies and a high price of oil with consequences for the rest of the world,' he said, adding that any slowdown in the U.S. economy would inevitably weigh on global growth.

WHAT DOES THE OIL PRICE DEPEND ON?
The price of a barrel of oil is the result of a number of competing factors: How much oil is available, how much oil is demanded by consumers, how much it costs to get oil from the ground to the consumer, the price of dollars and the potential that oil speculators see for the price to rise and fall.

Many of the long-term global trends point to steady increases in the price of oil. Reserves are finite so the commodity is slowly becoming scarcer ' something that pushes the price up.

The explosion of development in countries like China and India has created more demand as those and other developing regions industrialize. They build more roads and increase manufacturing - it all requires oil.

The bearish argument is that technological new energy developments - solar, wind, etc - should begin to reduce the world's dependence on the black energy.

Supply is fettered by the countries that export it. The Organization of the Petroleum Exporting Countries (Opec) meets regularly to set the amount they are willing to release onto the market. Opec oil accounts for approximately 35m of the 80m barrels released onto the global market each day.

Opec can reduce output as a means to push prices higher and can increase it to meet greater demand. It is tempting to think that all the producers are motivated simply by a high price. In fact, for some countries it may be beneficial to have a lower price if it means they can maintain, or increase, the volumes they sell.

Oil is priced in dollars so movements in that currency also impacts on crude. The weaker the dollar, the higher the dollar price of oil because it takes more dollars to buy a barrel.

There is one more factor that is thought to influence the price of oil. It is possible for investors to speculate on the price of oil by purchasing futures contracts. Investors - they could include investment banks, hedge funds or pension funds - will buy a quantity of oil to be delivered at a future date. If the price of oil has risen by the time the contract is delivered, the investor makes money. It became a contentious issue in 2008 when critics alleged that this type of speculation helped to push the price of a barrel to a record $147.

However, investors have defended the process, arguing that speculation does nothing to reduce the actual amount of oil on the market, which would push the price up, and that other commodity markets have shown greater increases than the oil market with no price speculation.