fossilfuelopolis

Prospecting the academic grounds on global energies patterns

The price surge of the early 2000s

As observed on the following graph:

Brent_Spot_monthly.svg

A dramatic increase associated for the first time with a rather weak dollar (see this paper (Benassy-Quere, Agnes & Mignon, Valerie & Penot, Alexis, 2007. “China and the relationship between the oil price and the dollar” )

What explanations?

History and Politics: The price increase which was rather gradual (from the lowest historical level of 20$ the barrel in 1999) occurs while

  • majors IOCs have merged and reinforced their positions (see this page) (in the late 90s)
  • The US necessarily reviews their energy policies and most particularly their alliance with Saudi Arabia after 9/11

The price short decrease in 2007 accounts for the subprimes crisis but right after it increases even more sharply. Similarly the drastic decline of 2008 doesn’t last, and the price of oil rises again to its upperbound.

Fundamentals:

Supply side
In the US: WTI: adaptations refineries standards for petroleum products, led higher WTI prices following the elevation refining margins between 99-2000. Cheney report: 2001 – increase in oil prices, which funded the explorations made ​​investments by multinational enterprises

Demand side

Sudden increase in global demand (China) : growing consumption of crude and derivative products from oil in China: imports increased by 11 between 96-2006.
(Note that the Asia pacific region accounted for 77% of Chinese imports then)

Speculation

In the late 90s (?), beside oil companies and oil traders, investment banks enter the trade market for energy commodities.
(Goldman Sachs, Morgan Stanley), fund managers (Pimco, Fidelity); cies Insurance (AIG) hedge funds (Citadel Tudor Jones).

 

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