Tuesday, September 4, 2012

Economy, not Physical Markets, Driving Oil Prices

The U.S. Department of Energy last week issued one crude oil loan from the Strategic Petroleum reserve to Marathon Petroleum Co. as gulf operators dealt with the effects of Hurricane Isaac. The dual effect of the Category 1 storm and the Labor Day holiday in the United States caused a brief spike in energy prices. More than 80 percent of the production platforms in the Gulf of Mexico closed as a result of the storm, causing a ripple effect in the market for petroleum products. Western economies had already expressed concern about the economic fallout from high energy prices. A recent statement from the G7, however, and continued growth in the Chinese economy may suggest there are broader geopolitical concerns at stake than physical market issues.

The U.S. Treasury Department issued a statement on behalf of the G7 noting the "substantial" economic risks of increasing oil prices. G7 members called on oil-producing economies to add more crude to markets to meet rising demand.

"The current rise in oil prices reflects geopolitical concerns and certain supply disruptions," the statement read.

The Treasury Department said G7 members were ready to call the International Energy Agency to action to ensure markets were flowing. IEA Executive Director Maria van der Hoeven, however, said that energy markets were "well-supplied." Hurricane Katrina in 2005, a much stronger storm, prompted a strategic petroleum release, but by Friday, companies like Exxon Mobil had already started the process of restoring operations in the Gulf of Mexico as the remnants of Isaac moved inland.

Read more: http://oilprice.com/Energy/Oil-Prices/Economy-not-Physical-Markets-Driving-Oil-Prices.html

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