The steady upward march of crude oil prices hit another speed bump on Monday as reduced projections for growth of the economy in China, the world’s largest energy consumer, helped hold back crude prices. This comes after prices retracted some 2 percent last week after five straight weeks of increases.
Many Factors Contribute to Price Increases, Decreases
The current rollback of crude oil prices is most likely due to market corrections after the bull run that crude has been on so far in 2012. Prices for a barrel of Brent crude have gone up about 20.75 percent since December 19 of last year, with Texas Intermediate crude going up about 13.25 percent over the same period. While the specific causality of increasing and decreasing crude prices is never precise, the rise in crude prices appears to have been a combination of concerns about the pending sanctions for Iran’s nuclear program and sunnier predictions about the American economy that could help boost demand.
Now, after the 10-week run of rising prices, things appear to be pulling back at least in the short term. Last week saw prices for Brent fall 2 percent and West Texas Intermediate fall 2.8 percent, marking the first time in five weeks prices have dropped for the week. Prices are up marginally today, with Brent Crude gaining 0.11 percent and West Texas Intermediate up 0.04 percent. However, CNBC’s weekly survey of analysts saw ten of the 14 respondents predict that prices would fall over the course of the week.
Crude oil prices can be very tricky to nail down because of the way both demand and supply can shift based on macroeconomic movements, and Monday appears to be another example of this. Despite the sanctions against Iran, prices decreased on news from China. Chinese Premier Wen Jiabao, in a speech made on Monday to open the annual session of National People’s Congress, projected growth of 7.5 percent for 2012. This is the third time that number has been revised down, and comes off of 9.4 percent growth last year and 10.2 percent in 2010.
How these developments will affect gas prices isn’t entirely clear. One of the primary drivers for growing energy prices over the last decade has been the growing Chinese economy, with a burgeoning middle class consuming more and more gasoline. It’s possible that a slow-down in growth might reduce some of the upward pressure on prices. Of course, from the supply side, if the situation in Iran continues to deteriorate, reduced supply could more than counteract the effects of slower growth in China.
Still, in the long term, it appears as though crude price, and subsequently gas prices, should continue to be on the rise for the foreseeable future.
“A rosier world economy needing more energy and worries over supplies are putting upward pressure on prices,” said Justin Harper, market strategist for IG Markets.
Oil and Gas Companies Take a Hit
Oil companies took a hit on Monday after the drop in prices and negative news on the Chinese economy. Cheniere Energy (LNG) fell almost 5 percent, Nabors Industries (NBR) is down just under 4.5 percent, Quicksilver Resources (KWK) lost over 5 percent, and ATP Oil & Gas (ATPG) is off more than 5 percent.