The Oil Depletion Analysis Centre (ODAC)

 

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Saturday, 26 May 2007                                 Tel:                 +44 (0) 7812 822 643

For Immediate Release                                 e-mail:             info@odac-info.org 

Contact: Douglas Low                                   Website:         www.odac-info.org

 

Petrol Headed For Over £1/litre – May Seem Cheap in Retrospect

Petrol prices are heading higher as refineries fail to keep up with demand1, and petrochemical plants in Asia are continuing to pay high prices to import increased volumes of naphtha, one of the feedstocks for petrol, much of which would normally have been imported into Europe2. Combined with US gasoline stocks being at a five-year low, the summer driving season about to start and the US relying heavily on European imports, all this adds up to high petrol prices for the summer, probably breaking the psychological £1.00/litre barrier in June.

The UK finds itself in the politically difficult situation of petrol prices reaching record levels due to refinery bottle necks while the price of crude oil actually falls, should OPEC decide to increase its supply of crude to the market. However, this is looking increasingly unlikely any time soon. A more likely outcome is that OPEC will continue to freeze its crude oil production for the rest of the summer, whether through reluctance or inability to raise production 3, and combined with geopolitical uncertainties in Nigeria, Iran and Iraq, will send crude oil prices higher, perhaps over the $80/barrel level, and thus increase the price of petrol even further.

Petrol at £1/litre, while shocking for the average motorist, gives a hint of what will happen once global oil supply peaks. Indeed, we may look back fondly at such cheap prices. A recent report commissioned by the US Govt which reviews recent forecasts for when global oil production will peak shows that half forecast peak in the range 2010-2015, with few beyond 20204. In any case, whether because of geopolitics, a lack of skilled labour or a near-term peaking in global oil production, data from both the International Energy Agency5 and the US Energy Information Administration6 suggest that the oil global oil production is struggling to increase.

Douglas Low, ODAC Director:

“A series of events including European refineries being shut down for extended periods for maintenance, high demand for naphtha in Asia and historically low stocks of gasoline in the USA all combine to form the perfect petrol-price storm. And the US summer driving season has not even started yet. Thus we expect petrol prices to be at or near record levels for most of the summer, going over £1.00/litre in June.

While the current petrol supply problems are primarily refinery-driven, it is beginning to look like this summer will also bring record high crude oil prices, perhaps breaking $80/barrel, due to the tight control OPEC has on oil supplies and the continuing political problems in Iran and Nigeria.

The longer term outlook should also be of concern since global oil production has barely risen for two years. Both International Energy Agency data and US Energy Information Administration data suggest that the oil companies are struggling to increase oil production. In the medium- to long-term, it may be that the squeeze will be put on petrol prices due to insufficient oil supplies. If global oil production fails to increase substantially over the next year or two, petrol at £1/litre may look cheap in retrospect.”

Ends

 

Notes for editors:

1.         ‘Highlights of the latest OMR’, International Energy Agency, 11 May 2007. http://omrpublic.iea.org/ :

            “Seasonal refinery maintenance and a spate of unplanned outages is expected to depress global throughputs. This implies, with demand increasing in June, that there will be a further tightening of product stocks. Refinery runs, and therefore crude demand, should rise sharply in July (2.5 mb/d over March) as refiners seek to meet peak summer demand.”

2.         ‘Gasoline crack hits 20 month high’, podcast, Platts, 02 May 2007. http://www.platts.com/Oil/Resources/Podcasts/europe/archive/2007/may/euromover0502.mp3.

            ‘Mediterranean gasoline prices rise as US driving season approaches’, podcast, Platts, 14 May 2007. http://www.platts.com/Oil/Resources/Podcasts/europe/index.xml.

3.         ‘OPEC Has No Plans to Boost Output, Say Libyan, Qatari Officials’, Maher Chmaytelli and Abdulla Fardan , Bloomberg, 21 May 2007. http://www.bloomberg.com/apps/news?pid=20601207&sid=ap.Gi49jnfrw&refer=energy.

4.         ‘Peaking of World Oil Production: Recent Forecasts’, Robert L. Hirsch, SAIC, Feb 5 2007. Available at www.odac-info.org, Assessments. A slightly shorter version of the report was published by World Oil, April 2007, Peaking of world oil production: Recent forecasts.

5.         ‘World Oil Supply and Demand’, Oil Market Report, International Energy Agency, http://omrpublic.iea.org/World/Table1.xls. See ‘Total Supply’.

6.         ‘World Oil Supply - United States, Persian Gulf, OAPEC, OPEC-12, OPEC-11, and World’, US Energy Information Administration, http://www.eia.doe.gov/emeu/ipsr/t14.xls.

7.         The Oil Depletion Analysis Centre (ODAC) is a UK-registered educational charity working to raise international public awareness and promote better understanding of the world's oil and gas depletion problems. Further information is available on its website.