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Energy: Does the crisis end - Views on News from Equitymaster
 
 
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  • Dec 1, 2000

    Energy: Does the crisis end

    Although the oil markets have stopped making it to the headlines they continue to remain volatile. Political unrest in the Middle East region has cast a shadow on stable oil prices.

    The latest fluctuations on the price chart have been the result of an impasse between Iraq and the United Nations over the pricing of Iraqi crude exports for the month of December. Subsequently, the Iraqi Government has threatened to withdraw its oil exports of 2.4 m barrels/day (mbd) or 3% of world supply from December onwards. Consequently, WTI crude blend climbed to a high of $ 35.1 / barrel.

    Beginning December, Iraq is planning to charge the buyers of its crude a surcharge of 50 cents / barrel. Further, the monies are to be remitted to an account outside the control of the United Nations (U.N). Currently, the proceeds of Iraqi oil exports are collected in an escrow account in New York, which are then used to pay for Iraqi imports of food, medicine, oil industry spare parts and war reparations.

    The market worry of an oil shortage in the high demand winter months was assailed with the United States energy secretary, Bill Richardson, stating that the U.S already had a contingency plan. This could include releasing further oil from the strategic petroleum reserve (SPR). U.S had earlier resorted to these reserves to overcome the energy crisis. It had released 30 m barrels of crude oil over the month October '00 to cool down the soaring oil prices, which had climbed to new ten-year highs.

    Other Middle East countries have also given their consent to contribute to the contingency package. Saudi is sitting on an inventory of 70 m barrels of oil and has said it will increase output to overcome any supply constraints.

    Subsequent to these announcements the markets have released some of the steam. Brent and WTI crude blends are trading at $34.8 and $32.7 respectively. However, concerns over the current impasse still remain.

     

     

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