Rare Earths Affecting Gas Prices

By: Anthony_David

A Reuters poll indicates that oil prices in 2011 will be driven largely by Chinese demand and reach a little over $90 a barrel. Prices, however, are unlikely to cross the $100 mark given the high global inventories. Further, the current landscape is unlike that of 2008 when the supply-demand gap was massive enough to drive prices up to $147.27 per barrel.

Frank Schallenberger, head of commodity research at Germany’s LBBW, said, “I think prices above the $100 mark will not be sustainable as inventories are still very high.”

Ali al-Naimi, oil minister of Saudi Arabia said that Asia, largely India and China, would drive the rise but he did not expect to see any rapid rise this year. He said, “I expect prices to continue to be stable at last year’s rates (levels).”

A key factor driving up the cost of gasoline production in the US is the rising cost of Chinese rare earth metals. Prices of some of the refining chemicals have skyrocketed as a result of China’s restrictive quotas on rare earth exports.

Charles Drevna, president of the National Petrochemical and Refiners Association (NPRA) said, “Any kind of increase, especially in today’s markets and conditions, is significant.”

According to analysts, should oil prices rise above $100 a barrel, refiners would find processing and raw material costs increase faster than they could charge their customers.

The Organisation of Petroleum Exporting Countries (OPEC) is, however, not particularly worried about rising oil prices and sees no reason to increase their production. In fact, OPEC has released a statement that states, “There is more than enough oil in the market.” Mir-Kazemi, president of OPEC said, “The increase in oil prices toward $100 is not worrisome enough to warrant a call for an emergency meeting.”

OPEC Secretary-General Abdalla El-Badri said that the commercial stocks of oil currently stand at levels high above the 5-year average and there is enough stock to last around 60 days, requiring no increase in production.

By Anthony David

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