News & Current Affairs

August 8, 2008

Oil ‘could hit $200 within years’

Oil ‘could hit $200 within years’

Petrol pump

Rising oil prices push up the cost of other items such as petrol and plastics

A serious oil supply crisis is looming, which could push prices above $200 a barrel, a think tank has warned.

A “supply crunch” will affect the world market within the next five to 10 years, the Chatham House report said.

While there is plenty of oil in the ground, companies and governments were failing to invest enough to ensure production, it added.

Only a collapse in demand can stave off the looming crisis, report author Professor Paul Stevens said.

“In reality, the only possibility of avoiding such a crunch appears to be if a major recession reduces demand – and even then such an outcome may only postpone the problem,” he said in The Coming Oil Supply Crunch.

Lack of funding

Prof Stevens warned that investment in new oil supplies has been inadequate as oil firms prefer to return profits to shareholders rather than reinvest it.

Furthermore, oil producing cartel Opec has failed to meet plans to expand its capacity since 2005.

He also argued that a “resurgence of resource nationalism” means that governments are “starving” their national oil companies of investment by excluding international oil firms from helping to develop capacity.

“While the forecast is controversial and extremely bullish, even allowing for some increase in capacity over the next few years, a supply crunch appears likely around 2013,” he added.

“The implication is that it will quickly translate into a price spike although there is a question over how strategic stocks might be used to alleviate this.”

Unpopular measures

However, Prof Stevens does conclude that only “extreme policy measures could achieve a speedy response” in boosting supplies and lowering oil prices – a move that is likely to be “politically unpopular”.

Other, longer-term moves suggested by the report include offering support to help oil-exporters to manage “resource curse” – where an abundance of natural resources can damage a country’s economy – and allowing Opec to join the International Energy Authority’s emergency sharing scheme.

The report comes just days after oil prices slipped from peaks near $150 a barrel.

August 5, 2008

US Gulf states prepare for storm

Weather forecasters in the US have warned that a tropical storm could gain near-hurricane strength winds before reaching Texas or Louisiana.

The National Hurricane Center (NHC) said Tropical Storm Edouard was crossing the Gulf of Mexico and could make landfall by Tuesday morning.

The governor of Louisiana declared a state of emergency as winds reached sustained speeds of 45mph (75 km/h).

Oil workers have left some offshore rigs but no damage has been reported.

Evacuations

A hurricane watch is in place from west of Intracoastal City, in western Louisiana, to Port O’Connor in Texas, south-west of Galveston.

About 6,000 residents of two communities in western Louisiana had been asked to evacuate low-lying coastal areas.

The mayor of Galveston has not ordered an evacuation but has asked residents and visitors to be prepared.

A storm is considered to be a hurricane once its winds reach an average speed of at least 74mph (119 km/h), according to the NHC.

The Louisiana Offshore Oil Port has stopped offloading tankers and two oil firms were evacuating workers from platforms, Reuters news agency said.

Chevron and Royal Dutch Shell said they were removing employees from rigs as a precaution, but both insisted that production had not been affected.

Oil prices dropped below $120 a barrel on Monday for the first time since early May as it appeared unlikely that the storm would significantly affect oil and gas facilities.

The Houston Ship Channel has also closed.

Hurricane Dolly

At 1300 CDT (1900 BST) Edouard was 145 miles (230km) south-southeast of Lafayette, Louisiana and 240 miles (390km) east-southeast of Galveston, Texas, a statement by the NHC said.

“Edouard could be nearing hurricane strength before reaching the coastline,” it added.

Rainfall of 3ins to 5ins (7.6cm to (12.7cm) was predicted in Louisiana, and up to 10 inches (25.4cm) in Texas.

With winds extending outwards from the centre of a tropical storm for 35 miles (56km), residents were braced for the second bout of severe weather to batter the Gulf’s coastline in a month.

On 24 July, a state of disaster was declared in 14 Texas counties when Hurricane Dolly lashed the state’s coast with winds of 100mph (161km/h).

The Gulf of Mexico supplies about 25% of the US’s crude oil.


Are you in Texas or Louisiana? How are you preparing for Tropical Storm Edouard? Send us your comments

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