Oil & Gas Price Evolution

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What Moves the Oil and Gas Price?

Why are oil prices and gas prices so dramatically increased in the last view years? Oil and gas price will maintain the current level or rise in the next years because of the world economy, an increased demand on oil and its production costs, the gas demand, and the investment in developing alternative energy sources.

How long will the oil reserves last?

It is currently estimated that the oil reserves in the United States will last for 20 to 30 years, but this may or may not be accurate For example, since the first oil price shocks in the seventies, a many actions have been taken in order to reduce the consumption of oil and to reduce energy

The reality is, that the world oil demand is forecasted to grow in 2009. “World oil demand is forecast to grow by 0.9 Millions of Barrels per Day (mb/d) in 2009, averaging 87.71 mb/d which is 0.1 mb/d lower than in the current year.” (OPEC, Monthly oil market report, July 2008 p. 3). This report indicates that we expect a slow down in the years after 2009. Assumptions for this oil demand forecasts are; the Worlds Gross Domestic Product (GDP) grow will slow down compared to 2008, we expect normal weather and the energy-price as well as the demand of elasticity will strengthen worldwide. The higher oils and gas prices will reduce this demand by utilization of nuclear power plants, adding biofuel and moving towards use of smaller and economical vehicles. The industrial oils usage is balanced with the economic growth.

The oil market report stated:

Slowing demand for gasoline particularly in the US, combined with an easing in the distillate markets and costly crude have exerted pressure on refining economics across the world. The continuation of these trends may encourage refiners to cut throughputs or begin seasonal maintenance earlier than usual, which would trim crude demand. This could lead to further crude stock-builds in the coming months, putting pressure on crude prices in the latter part of the year. These perceptions may change if supply disruptions occur either in OPEC (Organization of the Petroleum Exploring Countries) or non-OPEC producers over the next months. The main wild card for the product market in the near future would be possible refinery outages due to a potential active hurricane season in the US Gulf Coast.

(OPEC, Monthly oil market report, July 2008 p. 3)

In Europe, for example, the oil consumption per unit of gross domestic product since around 30 to 40 percent and this is true both for households as well as for the industry. In the world's largest economy, the U.S., the savings were far less clear. The remaining oils reserves have to be produced on higher costs and we see also an increase in transportation as well.

Therefore the oils and gas prices will maintain or rise in the next years. In addition political turbulences and crisis will have dramatic impacts in the next 3 years (short –term). If we look at the value chain of oils and gas, than we are able to identify additional price rises like tax, transport costs and the focus on fuel deviates combined with research and development costs.

But what makes the price of oil and why have the prices rose so dramatically? In the seventies and eighties were often the OPEC and its pricing policy for increases blamed. Meanwhile stress economists and participants in the commodity markets, the finite nature of the geological resources and unequal distribution of deposits: To store in the U.S., Canada and Mexico together only five percent of total world supply of oil.

What is the role of futures markets?

Many economists also stress that with increased oil prices also an additional supply in the markets because so far to costly production is at once profitable. So now substitutes such as the oil sand in Canada dismantled what the expiration date for the global resources to move back. For the oil companies...
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