A Crude Crisis

Crude oil has made another record high, eclipsing the 100-hundred-dollar-per-barrel resistance level. But this should not come as a surprise as many consumers have predicted that oil prices would likely to breach the significant barrier.

At present, global crude production has been struggling as producing countries, like Indonesia, Iran, Iraq, Libya, Kuwait, Mexico, Nigeria, Russia and Venezuela, continue experiencing declining output. The decline in crude production is estimated at 8.5-million barrels per day, according to a Platts report.

While global production is down, global demand continues to grow at about 1.5-million barrels a day. China's appetite for energy is not yet over. The US and other large economies are already feeling the heat of the supply constraints. There will be an impending supply imbalance, so to speak.

Some oil-producing countries are discussing the eventuality of having to halt oil exports altogether in order to direct remaining production to their own domestic needs. Even Saudi Arabia, the biggest oil producer, is seeing their domestic crude demand growing that it may resort to the said option if the going gets tough. There were some reports that the Saudis are already producing at near full-capacity, and they have very little or no "swing" capacity at all to address the impending global shortage.

No wonder that crude prices will going to further work their way up this year. In fact, there are already some hedgers and speculators who bought forwards contract as high as US$200 per barrel as disclosed by Francis Glenn Yu, President & CEO of Sea Oil Philippines, during a recent Bloomberg seminar held at Shangri-La Hotel in Makati City.

The effect of this very high crude oil price in the world market may lead to recessions and inflationary environment. That is why United States president George W. Bush is calling for the Organization of Petroleum Exporting Countries (OPEC) to increase its output to help bring down price. However, the OPEC, which supplies about 40% of the world's oil, does not heed the call, as it seems opting to keep production steady or even mulling to trim it down.

Now the crude arena would going to be a battle between the mighty oligarch state versus the influential energy-peddling cartel with giant China betting for both sides.