Energy

'Cheap oil era gone': CNOOC boss

By Chen Jia and Zhou Yan (China Daily)
Updated: 2011-02-24 09:43

BEIJING - Oil prices will keep their growth momentum in the long run due to the ballooning exploration costs and the hike in energy demand on the back of the accelerating global industrialization pace, said Fu Chengyu, chairman of China National Offshore Oil Corporation, the country's biggest marine oil producer.

In the short term, the ample liquidity, a weak dollar, and the expectation for the appreciation of the Chinese yuan against US dollar will also push up oil prices, Fu said on Wednesday in Beijing.

"The cheap oil era is gone," Fu said, elaborating that compared with the past 10 years, oil exploration costs have surged more quickly as more oil is discovered in geopolitically sensitive regions such as the Middle East.

Crude oil futures for April delivery on the New York Mercantile Exchange had cumulatively surged about 9 percent in the week starting Feb 15, when political protests broke out in Libya, Africa's third-largest oil producer, at 1.6 million barrels of oil daily.

The tensions in Africa and the Middle East have added to concerns that the global oil supply may decrease, especially if the political strife crossed into neighboring oil-producing countries, Philippe Chalmin, head of the Paris-based commodities research institute Cyclope said.

The massive liquidity injection from the world's large economies has brought opportunities for commodities that include oil, and the US quantitative-easing polices have fueled the expansion of liquidity in the market that led to the oil price hike, Fu said.

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"The Federal Reserve is likely to continue the loose monetary policy until the end of this year, so excessive liquidity as well as an expected depreciation of dollar will further raise oil prices," David Hale, an economist with the Competitive Markets Advisory Council of the Chicago Mercantile Exchange, told China Daily.

Indeed, oil has become speculators' darling amid the fluctuating oil prices, which fed the appetite for financial institutions such as hedge funds.

"Hedge funds are more flexible than public funds and tend to choose the high-risk products that may yield high returns the recent trend of oil futures has whetted their appetite," said Li Zhoulei, an analyst at Shanghai CIFCO Futures Co.