Gulf oil spill puts upward momentum on crude oil prices

The Gulf oil spill is putting an upward momentum on crude oil prices after the US government slashed its forecasts for the Gulf of Mexico oil output by six percent following the BP oil spill.

The oil production cut will average 26,000 barrels a day in the fourth quarter of 2010 and 70,000 barrels a day in 2011, the US Energy Department said yesterday in its monthly Short Term Energy Outlook.

Oil price are finding strong support above the $76 a barrel mark as the longer term oil supply issues persist.

“Unless consumption is reduced, oil prices will be higher because we’ll have to bid for oil from other parts of the world,” said Edward Morse, the New York based head of commodities research at Credit Suisse Group AG.

“About 75 percent of the production in the Gulf of Mexico comes from waters deeper than 650 feet,” said Andy Lipow, president of Lipow Oil Associates LLC, an energy consulting company in Houston. “Should we curtail that future drilling, we would see an impact on US production. In an environment where total world demand is growing, this impacts supply.”

“We’ll see a significant impact on 2010, 2011, 2012 and early 2013 oil production,” said Roger Read, an analyst in Houston at Natixis Bleichroeder.

The Gulf oil spill maybe having an effect on prices already as WTI Light oil futures prices for delivery in a year’s time are 8.5 percent higher than the front month contract on the NYMEX, while WTI Light oil futures for three years time are at a 15 percent premium.

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