Procedures to overcome the negative impact of Hurricane Katerina on the oil industry have put a break on skyrocketing prices. Mona El-Fiqi
To the relief of many crude oil prices started dropping this week to reach $63 a barrel. The drop came in response to actions taken to provide more supplies of oil in markets.
Following the news of massive long-term damage to US refineries caused by Hurricane Katrina, oil prices had skyrocked to reach $70 a barrel last week. Fears of an oil crisis spread and governments began to worry that a US petroleum shortage could affect their economies.
In response to the unexpected increase in oil prices and the of fear of an oil crisis, several procedures have been taken to ease the oil market.
For the first time since the Gulf War in 1991, Japan decided to sell 7.3 million barrels of its strategic inventory. This decision was followed by the announcment of industrial countries that they are going also to use part of their stratgic oil inventory to help reduce prices.
Moreover, the 26 countries members of the International Energy Agency agreed to sell two million barrels a day starting last friday and for 30 days.
To overcome the negative impact of the Hurricane Katrina, the USA had to use 30 million barrel of its strategic inventory.
Also in an attempt to halt the upward spiral in prices, OPEC had decided to increase its production by a million barrels a day to reach 31 million barrels a day.
The sharp surge in energy prices had everyone questioning where oil prices will be heading. Some oil traders expect they might reach $80 a barrel while others are setting their sight on $100 a barrel.
Amr Kamal Hammouda, an oil expert and director of Al-Fustat Centre for Studies cited a myriad of reasons as to why he agrees with many international analysts who expect that crude oil prices may reach $100 a barrel.
Foremost amongst these reasons is that oil prices are always responding to changes in demand as well as OPEC and non OPEC supplies. Oil demand is now exceeding supply because the hurricane closed down 91 per cent of crude production in the Gulf of Mexico and 83 per cent of natural gas production.
According to Hammouda, crude oil prices are also highly affected by the current political instabilities in the various regions of the world. Moreover, the seasonal factor may also help in raising crude oil prices, "with the approach of winter, oil refineries demand for crude oil grows," Hammouda added.
As for the impact of oil prices on Egypt, Hammouda said that while Egypt can achieve profits from the price increases in its crude oil exports, it still has to import the high quality crude oil necessary for some of its oil refineries.
Egypt's total production of crude oil fell from 900,000 barrel a day in 2000 to 570,000 barrel a day in 2005.
Hammouda also asserted that Egypt's import bill for refined oil products will cost more due to such price increases. For example, Egypt's annual imports of liquefied petroleum gas (butane) stand at one million tonnes, a tremendous amount which witnesses an annual increase of 17 per cent as a result of the incomplete natural gas network to homes in most of Egypt's governorates.