2012 March 16

The Master Resource Report  2012-03-16

2008 compared to 2012

As everyone knows the price of oil spiked in 2008 to nearly $150 per barrel in June. So how does the current price environment for Brent compare to what happened in 2008?

The graph below compares the period from January 2010 thru this week (blue) with the period from January 2006 thru the same week in 2008 (red line). The current price of Brent crude oil is 25% higher than it was the second week in March 2008 when it was at $100/barrel. In fact it did not reach the current $125/barrel price in 2008 until late in May. (EIA data)

Click image for larger view

The Wall Street Journal reported that British Prime Minister David Cameron and President Obama discussed using the strategic petroleum reserve to dampen oil prices. The graph clearly illustrates why they are so scared about the trend they see and the memory of 2008.

“Speaking at New York University Thursday, Mr. Cameron said he and Mr. Obama on Wednesday discussed tapping oil reserves. “We’d both like to see global oil prices at a lower level than they are today,” Mr. Cameron said. Speaking of releasing reserves, he added, “I think it is something worth looking at, because it’s having an effect on all our economies.”

If you are an elected official that has no control over oil prices trying to win an election with a public that thinks he or she does have control this is the kind of useless and even dangerous thing that gets considered, or even done. A little honesty about the markets supply and demand would be better but then you can’t talk up “Energy Independence”.

So what about the supply and demand situation? The Financial Times commodities editor Javier Blas gave some good reasons why price is up on the demand side.

“The largest utilities in Japan imported 730,000 barrels a day of fuel oil and crude for direct burn last month, up roughly 350 per cent from the same month a year ago, according to data from the Federation of Electric Power Companies of Japan.”

“Japan is not alone in adding to demand. Beijing is boosting oil imports as it adds refining capacity. China last month imported 5.95m b/d, a monthly record and up 18.5 per cent year-on-year.”

In addition to the demand being up supply is down for a number of reasons in areas like the UK North Sea, South Sudan and of course Libya.

This reports “Prime Directive” is to never predict price. So it won’t start now but clearly the trend does not look good going into the peak gasoline demand season in the U.S. How much is driving your car worth to you? We may all soon get a chance to find out.