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TURKEY - The Danger Years For Conventional Oil Are Getting Closer.

If no change of global importance occurs, conventional crude oil prices will remain high at least for a few more years to come. This is because OPEC will continue to defend prices, its members having learned that it is better to earn from one barrel the money that otherwise they could get out of two - provided the price does not exceed a limit above which conventional oil ceases to compete with other sources of energy.

To the argument that OPEC is thus losing market share to non-OPEC exporters like Russia, the group's response is simple. The bulk of the world's proven reserves of conventional oil lies within the OPEC region and the reserves of most non-OPEC exporters are beginning to deplete.

However, alternative fuels have become competitive already - even if the price of WTI is less than a third of its current level. Danger years for conventional oil will begin from 2008, when additional volumes of alternative fuels will have come on stream. The threat to conventional oil will become progressively more serious in each of the following years.

The Brent/Dubai Exchange of Futures for Swaps (EFS) for June on April 20 traded at more than $6/b. A wide Brent/Dubai EFS makes Middle East sour crudes more attractive, compared to Russian sour Urals or sweet West African grades priced off Brent.

The EFS alone, however, last week was not enough to support the market further. The Brent/Dubai price differential is wide, freight is cheap and margins are good. But Chinese traders Sinochem and Unipec last week offered Oman on the market, with Unipec reselling at least 500,000 barrels. Unipec offered 950,000 barrels of Angolan Girassol crude for May, on top of its offer for up to 8m barrels of crude. Crude oil freight rates from the Gulf have been languishing at 9-10 month lows, despite oil prices hitting fresh records.
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Publication:APS Review Oil Market Trends
Date:Apr 24, 2006
Previous Article:TURKEY - The Global Oil Perspective.
Next Article:TURKEY - Turkey's Geography & Political Boundaries.

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