Bolstered by the first signs that the global economic outlook may be improving, combined with a weaker US dollar, oil prices recently eased through the US$ 60/bbl marker for the first time in six months.
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Bolstered by the first signs that the global economic outlook may be improving, combined with a weaker US dollar, oil prices recently eased through the US$ 60/bbl marker for the first time in six months. Whilst this represents an 85% increase since the US$ 32/bbl low in February, it should not be viewed over-enthusiastically. As The Economist articulated recently with its usual sang-froid, ‘it would be a mistake to confuse the twitches of an economy on life-support with a lasting recovery’. This metaphor may be a little strong but it is nonetheless valid. China has indeed substantially increased imports of raw materials. Whilst this could be taken as an indication of economic recovery, it is actually more probable that China is merely taking advantage of current low commodity prices to stockpile supplies for the future. Similarly, OPEC has raised its output by 270 000 bpd following many months of production cuts. Apparently a positive gesture, but with the IEA simultaneously revising down predictions for world oil consumption in 2009 to 83 million bpd, OPEC’s optimism appears unfounded. It is very likely that having successfully pushed oil prices up to US$ 60/bbl, the cartel is struggling to keep its members compliant. As always, Saudi Arabia has made the biggest cuts with others such as Iran and Angola continuing to pump well in excess of their agreed production quotas. The danger for the oil and gas sector, is that any small increase in production could quickly and indeed negatively impact on crude oil prices.
Above all, global leaders and governments must not be complacent. The first signs of economic improvement do not necessarily compute to an instant end to the current global malaise but more likely to a slowing in the worldwide rate of decline. The two should not be confused. Nevertheless, with many of the world’s primary reserves fast depleting, the quest for new hydrocarbon resources remains of the utmost importance. The timing, therefore, of Gordon Cope’s article, ‘The Arctic frontier’, starting on page 8 of this issue, could not have been better with 13 May 2009 being the deadline for the submission of new claims to the seabed under the terms of the UN Convention on the Law of the Sea. With an estimated 22% of the world’s undiscovered oil and gas resources held in the polar region, the sovereignty of the Arctic is one area that will be keenly contested over the years ahead. Russia, which raised the stakes in 2007 by using a submarine to plant a Russian flag on the seabed 4 km below the North Pole, increased the tension further last month by suggesting that disputes in the Arctic would lead to war within a decade, stating that in ‘competition for resources it cannot be ruled out that military force could be used to resolve emerging problems that would destroy the balance of forces near the borders of Russia and her allies’. Denying that this was a direct threat, Russia has certainly succeeded in grabbing the attention of the other four parties with territorial claims in the Arctic: the USA, Canada, Denmark and Norway as well as those countries who have no wish to see even more of the world’s reserves under the control of Russia.
Russia’s rhetoric and entrenched stance clearly illustrates the difficulty of resolving these disputes diplomatically. The potential rewards are far too great, and of course, Russia still laments its sale of Alaska to the USA for two cents an acre in 1867. Even once the territorial disputes have been satisfactorily resolved, there will still be major environmental opposition to exploration and production in the Arctic – cue images of fluffy polar bears (again see page 8).