Oil Prices Inch up as Talks of Raising US Debt Limit Prevail

Crude oil prices went up Friday when news broke out that the House of Representatives was pushing for a higher debt ceiling. If approved, the new debt limit may be sufficient to cover impending obligations for the next three months or so.

According to the International Energy Agency, markets could expect oil prices to inch up some more as China’s oil consumption for 2013 is expected to reach a level higher than that recorded a year ago.  Also, OPEC might proceed with cutting oil output this year.

The Agency indicated in its recent report that the present level of oil stocks has narrowed.

The recent attack by Islamic forces on a gas facility in Algeria and the failure of the U.N. and Iran to make any major headway concerning the latter’s nuclear program have caused further rise in crude oil prices.

The Brent futures contract went up by almost 80 cents, settling at an end-of-the-week price of $111.89 per barrel.  In December last year, prices were about $107 per barrel.

U.S. light crude futures contract gained 7 cents closing at a $95.96 crude oil price per barrel.  For six consecutive weeks, light crude prices have exhibited an upward trend.

On Thursday, the price differential between U.S. light crude and Brent contracted to a record low since July partly due to the Seaway Pipeline expansion.  Lately however, the price gap bounced back to about $16 per barrel as on-going maintenance works at Oklahoma refineries affected demand for U.S. light crude.

Republican Majority Leader Eric Cantor mentioned that, by next week, the legislative body will allow a temporary increase in the debt ceiling giving, both the House and Senate ample time to approve a budget.

The U.S. Treasury must obtain Congress’ approval to increase the prevailing debt ceiling of $16.4 Trillion within February to March 2013.

Reports indicate that the growth rate of China’s economy was at a record low not seen in 13 years.  However, towards the end of 2012, the economic slowdown seemed to have reversed a bit as trading improved and government spending on infrastructure shot up.

Improved exports, growth in retail sales and increased output from the country’s industrial sector indicate that China’s pro-growth program did help boost its economy, including crude oil price per barrel.

Meanwhile, the hostage-taking crisis in a gas facility in Algeria ended with some hostages freed. Unfortunately however, about 30 of those captured, including some foreign nationals, were killed.

Following this catastrophe, Libya started to institute stronger security measures on its gas plants located near the border of Algeria.  Apparently, this incident has served as a wake-up call for owners of oil and gas facilities operating in the area and nearby regions.

By: Chris Termeer


Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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