Oil & Gas Industry

Crude Prices

The first quarter of 2011 was a continuation of the global economic recovery as the world GDP grew by more than 4 percent. The U.S., the world’s biggest economy, however, saw a decline in GDP growth at 1.8 percent when compared to more than 3 percent growth in the last quarter of 2010. The upsurge in the global economy along with supply disruption brought about a global commodity price boom. The crude crossed the $100 mark for the first time since September 2008. The average price of Brent Crude in 2011 averaged $110 per barrel, year to date in 2011, which is closer to the average price of crude at $117 in the heydays of 2008. However, the fundamentals of prices are remarkably different as the recent hike of crude prices was more of a supply-side concern than it was in 2008.
 

Arab Supply Disruptions

The popular uprising in the Middle East and North Africa (MENA) was a key trigger for a largely speculative rise in crude. The issue started with Egypt, although its domestic oil production equates to only 662,000 barrels per day (bbl/d), or 0.8 percent of the world total.  

However, the key issues were that the Egyptian government controls two major pathways for petroleum transport—the Suez Canal and Suez-Mediterranean (Sumed) Pipeline. This translates into the Suez being a pathway for 3 million bbl/d of flow—3.5 percent of the world total. With nearly 14 percent of the total world’s liquefied natural gas (LNG) shipped through the canal, it became a concern for the global markets as a potential choke point for energy.

Although normalcy was restored in Egypt, it did little to calm the markets as conflict spread in other parts of the region, and the developing unrest threatened production. Fears loom that this could take the Libyan (1.35 million bbl/d); Yemeni (125,000 bbl/d); and, of late, Syrian (148,000 bbl/d) oil from the export market. Although, this accounts for nearly 2 percent of the global production, it is the potential threat to the global supply chain that spooks the oil market.