World economy: Are Oil prices set to ease? - EIU
Higher oil prices are threatening the global economy says the Economist Intellegence(EIU) as tensions are rising over Iran's nuclear programme.
Source : https://www.marocafrik.com/english/World-economy-A...
Sanctions against Iran which have resulted in the Iranians cutting oil supplies to Western countries and the market's fear that Saudi Arabia may not be able to cover the short fall due to Iran's action. The EIU thinks Brent crude prices will stay high averaging $120 a barrel during the period April-June. Provided conflict with Iran is avoided, the EIU thinks that the oil price should fall later in the year as it feels the situation is not as tight as market fears suggest.
Crude prices have risen sharply since the start of 2012 going as high as $125 a barrel in March reflecting fears over disruption to supply and the EIU thinks higher prices will persist into the second quarter of 2012 as uncertainty persists over the effect of EU and US sanctions against Iran and the effects of Iran's suspension of its supplies continues.
Market fundamentals are also affecting higher oil prices for,as well as Iran's rehtoric and threats of conflict in the Gulf supplies from Yemen and Syria have been affected by civil conflict.In Sudan the pipeline carrying 260,000 barrels of crude a day (b/d) has been affected by the escalating conflict between North and South Sudan and the capture by the South of the oil fields claimed by the North. Production from the North Sea has been weak and oil exports from Iraq's Kurdistan have been halted.
Although these cuts in supply are limited themselves the cumulative effect amounts to 1 million b/d since the beginning of 2012, the EIU says.
Saudi Arabia has increased production and is the largest oil exporter which accounts for most of the global spare capacity for crude and increased production by other OPEC members such as Libya and Iraq. However this has not resulted in lower prices which remain at over $120 b/d, a price which if continued over time could affect global economic recovery at a time when it is vulnerable to shocks.
The US economy remains fragile, China's growth rate has dropt to 8.1% and the eurozone is still in the midst of a financial crisis. Whilst high prices are potentially disastrous for major oil consumers like the US and China, they can also affect producers because they reduce demand and encourage the use of alternative energy sources such as renewables. Despite Saudi reassurances that they can fill any supply shortfalls, the Market has concentrated on the fall in global spare capacity that an increase in Saudi output would imply.
The latest available data suggests that Iran is struggling to find markets for its oil as sanctions bite and European buyers choosing other suppliers before the full embargo on 1st July. The blocking of payments via the Iranian Central Bank because of sanctions and the difficulty of tankers getting insurance to sail via Iran complete the picture. Iiran's production drop is also the result of aging oil field equipment and lack of investment.
The EIU thinks that Iran will find some markets for its oil because Asian countries have agreed to abide by UN sanctions against Iran but not necessarily US sanctions.
India fufilled 12% of its oil requirements via Iran in 2011 and is looking at whether it can pay for its oil in rupees. Asian countries may also use barter arrangements to circumvent sanctions.
Talks between Iran and the six main powers the US, France, Germany, the UK, China and Russia are set to resume in Istanbul in mid April. Both sides have much at stake. In an election year President Obama will be senstive to public opinion which would be against an arlmed conflict. He has to face the US pro israeli lobby in America but the rhetoric from Israel regarding a strike against Iran's nuclear facilities has reduced recently. Iran will try to buy time and no one wants conflict.
Iran's nuclear policy will remain a source of tension but is less likely to influence market prices for crude. A release of oil reserves by the International Energy Agency may also be possible and this would reduce prices and the world oil supply situation will probably be less critical. Weak OECD enconomic growth and consumption will also reduce demand as will the accumulation of stocks.The EIU forcastes that the oil price will be likely to fall during the second half of 2012.
Crude prices have risen sharply since the start of 2012 going as high as $125 a barrel in March reflecting fears over disruption to supply and the EIU thinks higher prices will persist into the second quarter of 2012 as uncertainty persists over the effect of EU and US sanctions against Iran and the effects of Iran's suspension of its supplies continues.
Market fundamentals are also affecting higher oil prices for,as well as Iran's rehtoric and threats of conflict in the Gulf supplies from Yemen and Syria have been affected by civil conflict.In Sudan the pipeline carrying 260,000 barrels of crude a day (b/d) has been affected by the escalating conflict between North and South Sudan and the capture by the South of the oil fields claimed by the North. Production from the North Sea has been weak and oil exports from Iraq's Kurdistan have been halted.
Although these cuts in supply are limited themselves the cumulative effect amounts to 1 million b/d since the beginning of 2012, the EIU says.
Saudi Arabia has increased production and is the largest oil exporter which accounts for most of the global spare capacity for crude and increased production by other OPEC members such as Libya and Iraq. However this has not resulted in lower prices which remain at over $120 b/d, a price which if continued over time could affect global economic recovery at a time when it is vulnerable to shocks.
The US economy remains fragile, China's growth rate has dropt to 8.1% and the eurozone is still in the midst of a financial crisis. Whilst high prices are potentially disastrous for major oil consumers like the US and China, they can also affect producers because they reduce demand and encourage the use of alternative energy sources such as renewables. Despite Saudi reassurances that they can fill any supply shortfalls, the Market has concentrated on the fall in global spare capacity that an increase in Saudi output would imply.
The latest available data suggests that Iran is struggling to find markets for its oil as sanctions bite and European buyers choosing other suppliers before the full embargo on 1st July. The blocking of payments via the Iranian Central Bank because of sanctions and the difficulty of tankers getting insurance to sail via Iran complete the picture. Iiran's production drop is also the result of aging oil field equipment and lack of investment.
The EIU thinks that Iran will find some markets for its oil because Asian countries have agreed to abide by UN sanctions against Iran but not necessarily US sanctions.
India fufilled 12% of its oil requirements via Iran in 2011 and is looking at whether it can pay for its oil in rupees. Asian countries may also use barter arrangements to circumvent sanctions.
Talks between Iran and the six main powers the US, France, Germany, the UK, China and Russia are set to resume in Istanbul in mid April. Both sides have much at stake. In an election year President Obama will be senstive to public opinion which would be against an arlmed conflict. He has to face the US pro israeli lobby in America but the rhetoric from Israel regarding a strike against Iran's nuclear facilities has reduced recently. Iran will try to buy time and no one wants conflict.
Iran's nuclear policy will remain a source of tension but is less likely to influence market prices for crude. A release of oil reserves by the International Energy Agency may also be possible and this would reduce prices and the world oil supply situation will probably be less critical. Weak OECD enconomic growth and consumption will also reduce demand as will the accumulation of stocks.The EIU forcastes that the oil price will be likely to fall during the second half of 2012.
Source : https://www.marocafrik.com/english/World-economy-A...