Article
2008 Global Oil Market
Meeting energy needs is no easier than feeding hungry people. In the first half of 2008, oil prices rose and finally hit a historical high in July. But the prices soon plummeted due to growing concerns of an economic recession .In short, it has been a volatile year for the oil market.
January
Oil prices surged to over 100 U.S. dollars per barrel for the first time on January 2, 2008. Prices kept rising rapidly in months following, due to concerns about a tight energy supply. In July, oil prices hit an historical high of 147 U.S. dollars per barrel, with a prediction of hitting 200 by the end of the year.
Qin: Several months ago, you used the phrase “old supply and young demand” to describe the oil market. What do you mean by that? Could you elaborate on that?
Xu Xiaojie (Director, Overseas Investment Institute at the China National Petroleum Corporation’s Academy of Economics and Technology Research): Now the world oil demand largely coming from some large oil fields around the world. But basically, they are concentrated on a few countries, of course, a lot of from the Middle East like Saudi Arabia. And China is as well, like Da Qing and Sheng Li oil field as well. So, the current oil production, we can see 60% of oil coming from the big oil field. And all these big oil fields are over at least 50 or 60 years old. It’s very old, mature oil field and the pressure from on the ground is decreased. So the oil produced from these oil fields is very hard and cost much. In this case we call supply is very old. And demand, in other side, is very young, especially new demand from Asia, because all the countries in the regions are just coming to industrialized in a matured market.
Qin: How do we resolve this problem? It seems like a dilemma. You have the supply, the countries that are producing oil and nature resources, they are very old, they have been there for many years and as you said the production cost could be very high. On the other hand we have a brand new demand.
Xu: For the supply side, we have continued to invest more in the oil field to relax the investment shortage. Now in some country, including Middle East, they are quite lack of the investments. That’s why they have some spare capacity that cannot be utilized, so the world needs more investment.
August
The uneven distribution and critical need of energy supplies have led to complex international relations. The Russia-Georgia conflict broke out for energy resources in Caucasia and caused the division between Russia and the West to deepen.
Qin: How do you see the country, Russia’s oil and gas supply, affecting its relations with the West?
Xu: Russian is a major oil producer, the largest Non-OPEC oil producer in the world. Not even though, Russia is rich in the oil, especially natural gas in the world. Russia has a gas plant, the biggest natural gas company in the world. The recent years, market gave Russian very good opportunities to develop based on its economy, especially oil and gas development. And oil price, of course, gives huge opportunities, Russia benefited a lot. Now Russian gets rich and has a huge foreign exchange reserve now. So this is a fundamental reason for Russia to make himself strong enough to strength its diplomacies to confront with the West.
Qin: Do you think other European countries, we know Georgia has already broken up diplomatic ties with Russia and in fact collaboration talks between Russia and the rest of the European countries are in stalemate. Do you think other European countries can afford to break up with Russia?
Xu: Western Europe, as a whole, so highly, heavily depends on the import of the oil and especially natural gas from Russia. Even now they would like to diversify their import of the natural source, but still and will continually the highly depend on the import oil from Russia.
Qin: How heavily do they depend on Russia?
Xu: Almost 50% to 60% of oil currently comes from Russia.
September
Oil Prices fall as global economic growth decreased. OPEC decided to cut daily production by 500,000 barrels per day. In mid November, a further decrease of 1.5 million barrels per day continued to show that the effects of the global slowdown were real.
Qin: Do you think OPEC members as a whole are facing political pressure to a certain degree that this would affect their supply or production so much that it changes the market situation for oil?
Xu: OPEC, of course, is facing increasing political pressure, not only from its own but also from the outside. Outside means huge pressures from consuming countries. Two groups, one is developing consuming countries which means a group named International Energy Agency – IEA, and new group like the BRIC country, Brazil, Russia, China and India, four BRIC countries. They have to balance. It’s not so easy. If they keep the price high, of course it benefit themselves a lot, but they will hurt the market, especially consuming countries. If the market crashed, they hurt themselves. So their energy security highly depends on the market. Otherwise for producers, their energy securities so depend on the export from the suppliers.
December
Oil prices have plummeted more than 100 U.S. dollars per barrel from its peak in July. OPEC agreed to slash a record 2.2 million barrels from its daily production as of 2009 in order to stabilize the falling oil prices.
Xu: I don’t think the weak oil consumption will recover very soon in the next year, especially in the early next year. So the low oil price will still last for a few months ahead.
With the world in turmoil, falling oil prices may dampen people's initiative for alternative energy. But hard truth remains that the persistent use of fossil fuels will continue to haunt the environment that leads to a lack of agricultural produce. The three distinct issues are intertwined in a world with threats that have no boundary. It called on the international community to act swiftly with more effective resolutions to counter the common challenge that we face. It calls for a new year with new resolutions.