Don’t be confused by world oil prices and petrol prices at the moment.
The key indicator crude price for world markets, America’s West Texas Intermediate (WTI) is not accurate for a very simple reason: there’s a heavy oversupply of WTI type crude in the area of Cushing in Oklahoma, where WTI crude is deliverable under futures contracts in the US.
That oversupply is because of the numerous refinery production problems in the US which have been going on for three months in a couple of cases, and look to last a while longer for some major refineries.
That has been driving the gap wider with the key European marker crude Brent (a British North Sea crude from the huge Brent field whose quality is similar to WTI). It’s quoted on the ICE (International Commodities Exchange) and is known as ICE Brent.
Brent crude closed at $US70.69 on Friday in Europe, the first time it has closed a week above $US70 a barrel since last August.
WTI closed on Friday in New York at $US65.20, up $US1.02 a barrel.
Brent rose around $1 last week; WTI was up 26 USc a barrel.
That left the gap at $US5.49 a barrel.
Brent futures hit a nine month high late last week of $US71.80 on Thursday, boosted by a three week strike in Nigeria and further concerns about Iran and its nuclear program.
Fighting in Lebanon and rising tension in Israel, the West Bank and Gaza, have combined to push the ICE Brent price higher in the past 10 days, opening the price gap between it and WTI in New York to its widest ever.
The price difference between Brent and TWI hit record $US6.50 a barrel on Thursday.
Brent crude prices are currently seen as more representative of the global oil market because of that differential and the oversupply situation around Cushing, which has had its own impact in the current record prices for petrol American motorists are now paying as they start the so-called summer driving season (summer holidays for tens of millions of students, workers and others).
Analysts reckon that world oil prices could go as high as $US80 a barrel or a bit more by July (which the International Energy Association has already warned as being the danger month).
That’s because of those tensions in the Middle East, China’s strong economy and a cut in OPEC supplies of around 1.7 million barrels a day.
The analysts said little had changed since the last Northern summer when oil prices surged to a record $US78.65 for Brent and $US78.40 for US crude.
Iran’s nuclear program, attacks in Nigeria, tensions around Israel and China’s strong growth (but no North Korea, as yet), are still the current drivers for the oil market.
OPEC’s supply cut of 1.7 million barrels per day is one key difference; the other is the continuing production problems in the US, especially for petrol.
Rising petrol prices and demand are seen dragging US oil prices higher in the next two months.
Oil prices are up just over five per cent this year, US petrol prices 47 per cent because of the refinery breakdowns and shortages.
Daily oil demand worldwide will rise by around 2.5 barrels between May and July, according to the IEA and that’s when the price pressures will be really noticed, if there’s not a release of crude by OPEC.
This is why there’s a good chance our petrol prices here will go past $A1.50 a litre in the next two months, especially with the Aussie dollar starting to retrace its surge in the first four months of the year.
It finished around $ 81.90 USc on Friday; that’s a good 1.7 c down on levels seen in April.
If the dollar continues to soften as oil prices rise then the rise in petrol prices will be a bit larger than thought.
Our prices are influenced by the price of crude in the Singapore market which closed around $US65 a barrel for the marker crude, Malaysian Tapis, on Friday.
