Saturday, April 14, 2012

CRUDE PRICES UNFORESEEN SHOCK


UNFORESEEN CRUDE SHOCK.

The crude price prediction is not an astrologers work neither I have tried to do so in my article. We all know that once the crude price rises above and sustains to $120/barrel. The recent developments in world crude market it seems that we are heading for a hard landing and inflation will rise abnormally across the globe specially affecting the emerging economies. Crude might rise back to the level of $140/barrel and its minimum base price will be not below $120/barrel in the coming next 1 year time frame. Further there are no vast, new supplies of oil that will come online in 2013, 2014, and 2015 at the scale to negate existing global declines. Major of the blows will come in this 2012 where the economies will face the heat of rising crude prices and increasing the gap between fiscal deficit. In my article I have depicted the some of the strategies being adopted by few economies regarding to fight as well as make commercial advantages from the unforeseen danger of high oil price.

Crude is being stocked across all the major economies as well as by the producing countries. This stockpile is being made on record quantum just not to take advantage of the low price of crude but to sell it to consuming countries once the price rises beyond to $120/barrel. Over and above these economies can foresee the huge upside jump in crude pieces in coming years. These economies who are doing stock pile will be taking advantage of high oil prices to reduce their fiscal imbalances against trade of exchange of business and negotiate in exchange of trade and commerce. The price and demand of crude depends upon geo-political impact but now it stands beyond that limit. Since US and Europe seems to be fewer contributors to price rise in crude backed by their demand prospects the game of demand and supply will have negligible impact on crude price in 2012 and 2013.

CHINA OPEN’S WIDE MOUTH.

China's crude-oil imports jumped to near-record levels in March. China oil imports reached 5.57 million barrels a day in March, the third-highest month on record and a rise of 8.7% from the year-ago month. China's crude imports rose 11% from the year-ago quarter, a much stronger pace than full-year 2011's increase of 6% .China is in the process of gradually filling the reserves" before reaching the goal of having 90 days of supply. China has brought new storage facilities online in recent months and is in the continuous process of building new reserve facilities. China estimates that its crude-oil imports will average 5.77 million barrels a day in 2012, up 13% from a year ago. Among this about 150,000 barrels a day could find their way into storage. In the recent turmoil with Iran and other economies china has gained a substantial crude oil supply from Iran. Iran supplied 11% of China's total imports in 2011.China ha built two more storage sites which became operational in Dushanzi and Lanzhou, in the Western part of the country, late last year of which each can hold 18.9 million barrels. Six more are expected to come online by early next year, adding another 131 million barrels.

This reflects that China is simply making a huge stock pile of Black Gold and later on will meet its own demand as well as earn forex reserves by selling to other economies. China International Capital Corp. estimates that 10.6 million barrels of oil had flowed into storage, both strategic and commercial purpose and this commercial purpose excludes domestic consumption. China’s long term plans regarding storage facilities are massive. China has planned to expand capacity to more than 500 million barrels by 2020, according to China Oil, Gas & Petrochemicals.

IRAN ADAVANTAGE

It is not china alone who is doing stock pile for commercial purpose. With the recent turmoil with Iran the country itself has planned up massive oil storage facilities. Managing director of the National Iranian Oil Terminals Company has stated recently that the National Iranian Oil Company plans to start using a new storage facility at the Kharg Island oil terminal in the northern Persian Gulf and this facility is ready. storage capacity at Kharg Island, which is Iran’s largest oil export terminal, was reported to be 16 million barrels as of mid-2008 and now that stands around 20 million barrels.

Iran will expand it to 31 million barrels. Recently Iran has disabled tracking systems aboard its tanker fleet, making it difficult to assess how much crude Tehran is storing and exporting to other economies against the Western economies restrictions. Most of Iran's 39-strong fleet of tankers is now "off-radar" after Tehran ordered captains in the National Iranian Tanker Co (NITC) to switch off the black box transponders that are used in the shipping industry to monitor vessel movements. Hence the crude market is quite in dark and it is casting shadows of a major crisis and high prices in coming years. The restriction on Iran by Western economies has given immense opportunity to other economies as well as domestic oil producing nations to increase their storage facilities. According to the International Energy Agency Saudi Arabia has increased its oil production to a 30-year high to storing millions of barrels of its oil at home and in its major markets.

According to the research findings it has been found that the Organization of Petroleum Exporting Countries (OPEC) has raised its output by almost 1.4 million barrels a day over the last six months. Around 40% of this increase comes from Saudi Arabia’s spare production capacity, with improvements in Iraq and Libya’s oil industry delivering most of the rest. In fact Saudi Arabia flexed its muscles of oil production immediately after EU ban on Iran oil. This production is being stored and later on will be sold once the price rises to beyond $120/barrel. All these storages are being developed just to make appropriate gains once the crude hits the floor of 2008 level. Well now we have to wait for the prices to rise once July 2012 calendar opens up.

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