By Kevin Morrison
Published: June 18 2005 03:00 | Last updated: June 18 2005 03:00
For the past 18 months, the Organisation of the Petroleum Exporting Countries has been blaming the high oil price on the decline in the dollar, geopolitical factors, and speculative money in oil markets.
Now they see the petroleum refinery industry as the main culprit.
Although the oil cartel deflects any criticism that it might have contributed to the high price, it nevertheless has a point - that tight refining capacity is pushing up the price of petroleum products such as gasoline, diesel and heating oil.
So far this year, price increases in petroleum products have outpaced crude futures.
Some energy traders say tightness in the finished petroleum product market is leading the crude oil price higher.
US gasoline futures are up almost 50 per cent since the end of December.
US heating oil futures, which traditionally soften over the summer months from their winter peaks, are about 34 per cent up - and more than 70 per cent in the past 12 months.
Gasoil futures in London are more than 47 per cent higher this year.
In comparison, Brent,the European crude futures benchmark, and the West Texas Intermediate crude futures benchmark are up 41 and 31 per cent respectively.
This has led to a rise in refiner margins over the past year to about $10 a barrel for refining petrol.
This, in turn, has led to bumper profits for refiners and oil majors.
Oil traders said refiner margins for next year were priced higher in oil derivatives markets as refinery capacity was likely to continue to lag oil product demand.
Traders said the most eye-catching gain this year had been US heating oil futures, which were trading at a premium to gasoline futures - the first time this has ever occurred in June, which is near the peak in demand for gasoline and the trough for heating oil demand.
"We have not had heating oil prices above gasoline in June since the [second world] war," said Philip Vergeler, an independent petroleum economist.
Although concerns remain about adequate supplies of heating oil this winter, the driver behind the price rise is growth in diesel consumption both in the US, predominantly from the trucking industry, and in Europe, where diesel cars account for more than half of all new car sales.
However, the premium of heating oil to gasoline has narrowed in the past few days as the attractive margins for processing heating oil led to an increase in inventories recently.
With high refining margins pricing in market tightness for the foreseeable future, Opec has an easy target to deflect the blame for high oil prices.
This week Opec ministers made the most of high-lighting the refining issue, while at the same time assuring that there was plenty of crude oil to supply customers.
Sheikh Ahmad Fahad Al-Sabah, Opec president, said he expected Opec to boost actual production as early as next month - regardless of whether the cartel goes ahead with an option to add another 500,000 barrels a day to its quota, on top of the planned 500,000 b/d it will go ahead with on July 1 to take the official production ceiling up to 28m b/d.
Sheikh Al-Sabah said oil prices would have to move higher before the second step of the proposed increase goes ahead.
"This level of $50 to $52 - I will start to consult my colleagues, but it must be maintained for a while," said the Opec president, referring to the new Opec basket of crude exports.
This index of prices was about $50 yesterday. August Brent rose $1.16 to $57.38 a barrel yesterday, and July Nymex WTI added $1.37 to $57.95 a barrel. Both moved within touching distance of their respective records.
Copper prices hit a record of $3,383 a tonne yesterday on declining inventories and gold hit a record in euro terms of $361.25 a troy ounce on political uncertainty within the EU.
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