The crude oil prices continued to slide and closed below 130 U.S. dollars a barrel for the first time in more than a month on Thursday (17/07/08) following reports that the crude oil inventories is building in the US.
The Energy Department's Energy Information Administration said in its weekly report that crude oil stockpiles jumped by 3 million barrels and natural gas inventories rose by 104 billion cubic feet last week. The unexpected increase prompted the large sell-off as the investors are concerned that the high energy prices have curtailed the demand.
Can the crude oil prices sustain the downward momentum? If base on the current situation, there is definetly a surplus of production compared to demand and if the trend continues, the crude oil can slide down lower. The high oil price has triggered the consumers to adopt a more prudent approach to cut down and to minimize their oil related activities. People have been switching their SUVs with a more fuel efficient hybrid and many people are using the public transport to safe on their fuel consumption. In Malaysia, there have been some reported drop in the sales of petrol and diesel at the kiosk and there have been lesser car on the road since the government decision to increase the price of fuel around 40%-60%.
Currently, the market selling price of crude oil at around USD130 - USD150 is well above the estimated cost of production of around USD20 to USD40 at the pump. Nevertheless, when discussing about oil and gas field development project, we should also take the note of the high investment during the exploration and development period which can be in billions and also the high risk that some drill wells may appear to be empty. At USD130, the ROI for the many oil and gas investors and operators can be as quick as within 1 year period, since the price of selling is far exceed the cost of producing, and many marginal fields and other deepwater fields can becoming more viable.
The high crude oil price also has triggered many countries to focus on the initiatives to be independent of the fossil fuels and to search for renewables and other alternative energy. Most major developed countries in the Europe have impose a very strong policy in their effort to be less dependent on oil and they have greatly encourage the usage and development of alternative energy and other fuel efficiency initiatives. If this trend of strong policy to be independent of fossil fuels can be adopted by other developing countries, there will be a higher possibilities that the current crude oil prices can drop further in the coming months.