During the past week, the world has witnessed a series of events that influenced the various sectors of the growing global economy. On one hand, some events promised more developments and expansion not only in the international trade but also in specific countries. On the other hand, some occurrences may negatively impact or alter certain aspects of world trade including the economy of the country specifically involved.
Oil Price Rolls Back in the World market
The entire week is full of good news for oil importers worldwide. Since Monday, the oil price decreased by $2 per barrel in the world market. Prior to that, the value of oil kept on increasing due to the disruption of supply in Iraq as well as in Nigeria. According to the report by Mohamed El Baradei, director of International Atomic Energy Agency, Iraq has been planning to empower its production of nuclear fuel. The news has caused tension and raised concerns regarding nuclear weapons. Discussion about the issue is currently ongoing. The IAEA will talk about the subject on its scheduled meeting on March 6. After which, the report will be handed to the U.N security for final assessment.
The almost $2 decrease of oil price in the world market was caused by a failed terrorist attack that took place at the largest oil plant in Saudi. The situation though was immediately controlled by the Saudi forces that were roused to full alert because of the tension. The oil supply though was not disrupted within the country despite the attack. The value of light crude oil decreased by $1.91 while the price of brent crude oil lowered to $1.61.
The opposite situation, however, is taking place in Nigeria. Just recently, the oil price rose up to more than $2 per barrel. The sudden increase was influenced by the news of the Saudi terrorist attack. Moreover, another reason was oil supply within the Nigerian region was cut by 13,000 barrels per day due to the discovery of a leak. The series of militant threats and attacks within the region also prompted the increase of the oil price.
According to energy analysts, the improvement of the oil price in the world market would have been even better. However, there are several factors (like the focus of the oil market on short-term inventory data) that prevent more positive results. Currently, the oil price still remains close to $61 per barrel as a result of Algeria’s plea to OPEC for market stability.
Meanwhile, Shell, which is the third leading oil company, has gained a total of $23 B profit last year. This should be an enough reason to celebrate, but the huge oil company is currently facing the need to improve and expand its oil resources. Otherwise, it will run out off supply in the future. According to reports, Shell was only able to replace between 60% – 70% of the gas it used for production last year. In 2004, the percentage was even lower with only 19% or replacement.
Shell, however, is making use of its large assets in order to meet the stiff market competition. Its oil reserve projects located in Nigeria, Sakhalin Island, and Gulf news classified are currently underway. The success of these projects would definitely empower the company’s future possibilities.
Regions in the U.S particularly East Coast and Nigeria are also facing issues with regard to their oil supply. This problem may eventually result to changes in the price of fuel. This situation is primarily caused by the shift in the chemical used in the fuel refining process. Formerly, MTBE (methyl tertiary butyl ether) was used during the process. The use of MTBE, nevertheless, led to problems and protests regarding water pollution and the contamination of water supply. As an alternative, fuel companies in the U.S particularly in the East Coast and Texas are utilizing ethanol. The problem though is that ethanol is not abundantly produced within the country. Moreover, the fuel refining needs are greater than the amount of reserve available. As a solution, the U.S government is currently importing ethanol from Brazil while it continues to construct more ethanol plants within the country.
The campaign for energy independence in the U.S is also receiving negative feedbacks. Critics such as Tom Friedman of The New York Times commented that the government should focus on other more relevant issues aside from it. The claim that while energy independence may be motivated by noble purposes, it might not be the wisest move now. The government should look for other more practical alternatives. Besides, the big budget energy independence demands could be allotted to the other sectors of the economy and government.
The Various Auto Companies Continue to Grow and Expand in the World market.
The discussion regarding oils issues leads us to another important area, which is the car industry. Generally, auto companies reported notable developments and expansions during this week. Last Wednesday, Nanjing Automobile acquired the MG Rover plant at Longbridge, England for a 33 year lease from St. Modwen Properties Plc. The leading Chinese auto maker is said to have paid 1.8 M pounds for the 105 acre factory. Nanjing surprised the global car industry last July 2005 when it bought MG rover for around 53 M pounds thus outbidding its fellow Chinese competitor, Shanghai Automotive Corp. The big move is part of the company’s vision to become one of the leading car brands in the world.
Honda Motors Co. is also getting more attention form the international auto market after it disclosed its plans to produce a hybrid yet low priced version of its Fit subcompact. The car maker intends to release the hybrid design next year. Honda representatives, nevertheless, clarified that the hybrid technology will be distributed only at a lower scale. This is due to the design’s very expensive production cost. However, Honda is also developing smaller battery and motors that would help reduce the hybrid cost in the future. This venture is part of Honda’s goal to beat the problem of high-gasoline consumption through specially designed automobiles. Aside from Honda, other companies that have joined the market for hybrid cars are Ford and Toyota.