Many factors boost energy costs
Tom Stundza, Executive Editor -- Purchasing, 3/29/2006 7:00:00 AM
High fuel inventories and relatively soft consumer demand have pushed prices of energy products off record highs recorded last year. Still, gasoline, heating oil and other refined products are pricey and the experts believe they’ll remain costly for many months to come. Continued steady growth in world crude oil demand, only modest increases in world production capacity and continued risks of geopolitical instability all will combine to keep global crude oil prices high well into 2007.
The quarterly Energy Flash Report now is available for subscribers at Purchasingdata.com. The jist of this report is that factors ranging from growth in demand to feed an improving world economy to geopolitical instability caused by terrorism all boost pricing. A report by Barclays Capital in London says the market “will likely remain particularly sensitive to gasoline inventory levels in the U.S. report because of the approaching driving season and concerns that changes to gasoline specifications could result in further constraints on capacity.” While the expected crude-oil build could pressure pricing down, a fear has been expressed by the Sucden Commodity brokerage in London about price inflation from concerns about supplies from Nigeria and the Middle East. Note that Royal Dutch Shell just shut nearly half of its Nigerian production and says it won't resume operations until the country is safe enough for its workers. Also, Iran also remains a potential source of supply concern. It has been referred to the United Nations’ Security Council over fears it may want to misuse its nuclear program to make weapons, but the council has been at loggerheads over U.S.-led efforts to ratchet up the pressure on Tehran. Related to the Flash Report, note that a new report from Merrill Lynch is touting future renewable energy projects. Reason? Global buyers of oil-based products polled by energy company BP and brokerage Merrill Lynch are most concerned about pricing and supply security of transportation fuels. High prices, especially, have moved the renewable energy debate to center stage, according to analysts Asari Efiong, Mark Iannotti and Alastair Syme at Merrill Lynch’s office in New York. The researchers project near-term capital spending of $2 billion annually for renewable energy projects keyed to wind, hydrogen and such biofuels as ethanol. They write in a new report that “increased investment is an indication of the reality that renewable energy makes sense for the environment, gives improved security from diversity of supply and improved technology is moving these alternatives sources of energy further down the cost curve.”
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