TWO FACTORS OF OIL PRICE DROP » Caspian Partnership for the Future

TWO FACTORS OF OIL PRICE DROP

Oil prices, which climbed up to a record point on 12 July ($147 per barrel), set to drop rapidly after a week. Price for August futures for American Light Sweet Crude Oil dropped by almost 20% within a week to $128 per barrel. In recent three days, price for crude oil in New-York descended by $15.89 per barrel.
It was a surprise that Brazil news, where state-owned Petrobas workers went on a 5-day strike on 14 July which reduced production by 400,000 barrels per day, did not affect oil prices.
Senator Obama’s unexpected statement that US troops may be deployed in Afghanistan and tough sanctions may be imposed on Iran in case of he wins the elections also did not affect oil prices.
However, the reasons for such a rapid drop in prices are clear. Fortunate concatenation of two circumstances at the end of last week decreased fuel prices: lift of White House’s moratorium on oil production in own shelves and slackening of tension between Iran and western countries.
U.S. Government realized that given rapidly rising oil prices, development of own fields gains more and more importance for the country.
Last week, US President George Bush cancelled moratorium on production of oil from the shelf of the Atlantic and Pacific oceans and a part of the Mexican Gulf, which was passed in 1981, as well as called on Congressmen to back the initiative. The only thing separating the American people and those fields rich in oil is a Congress decision, said Bush.
For the first time Bush made the initiative to Congressmen in June 2008. He thinks besides for struggle against high petrol prices, development of shelf fields will help United States improve its own oil reserves and become less dependent on export. Shelf’s oil reserves are assessed at 18bln barrels – 1/5 of States’ proven reserves.
However, it would be too early to say that the fuel crisis in US is solved.
Not all Congressmen backed president’s initiative. Presidential contender from Democratic Party Barack Obama opposed lifting of moratorium. “Should oil production from the shelf decreased petrol process or enabled development of a long-term economic strategy of energy independence, we would consider the opportunity in spite of all risks,” Obama’s spokesman Bill Burton said.
Even if Congress agrees to support Bush’s decision, one should not expect immediate independence of US on oil export and drop in petrol prices. According to the estimations of experts and those of presidential administration, the shelf is not suitable for development; therefore, America will have to wait for the first results for several years.
Besides, the development of the shelf requires big investments which enable oil companies involved in the development, to expect privileges from the government. It is, of course, means additional expenditures for the authorities and tax-payers.
However that may be, the stock exchanges reacted to lifting of moratorium on the immediate drop in the oil prices which was later confirmed by reports on the talks between EU high representative on foreign policy and security policy Javier Solana and Said Jalili, secretary of the supreme council for national security of Iran in Geneva.
The last run-up in the oil prices which began last week was prompted by the increasing tension because of the rumours on the possible military attack of US and Israel against Iran after its missile tests. However, a number of experts in the States described the test of missile as a ‘bluff’ which contributed Iran $25mln a day due to the run-up in oil prices. After all, Iran is second to Saudi Arabia for export of oil in OPEC and it produces 4 million barrels of oil a day.
The talks of the representatives of 5+1 which involved Assistant Secretary of State of US Williams Burns, gives hopes that the problems related with Iran will be solved. This meeting was the highest point of the direct contacts between the two countries after break-off in relations in 1979.
“The drop in oil prices resulted in the relaxation of tension between West and OPEC member state – Iran which supported prices for the whole month,” CNBC financial channel reported. However, the parties could not come to the common denominator during the talks. Jalili, secretary of the supreme council for national security of Iran did not give any guarantee to West as to whether Iran will follow 5+1’s tastes. The American and European diplomats had to give two weeks to Iran to think.
The further dynamics of ‘black gold’ prices depends on two factors: the consent of the US Congress to lift moratorium on the development of shelf and two-week ‘thoughts’ of Iran.

Azerbaijan, Baku, 21 July /Trend Capital corr. E.Tariverdiyeva

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