April 2010 Monthly Average Crude Oil Price: Extending the Trend

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The monthly average price of West Texas Intermediate crude oil rose for a second consecutive month in April, to $84.48 per barrel – a gain of $3.24 (4.0 percent). That price increase coincided with a weaker dollar, and occurred because of the lagged impacts of an uptick in consumption of roughly 0.3 million barrels per day (BPD) in February – the latest data available – and despite rising crude stocks.

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News of “national significance” on the domestic energy front involved the explosion aboard and subsequent sinking of Transocean’s deepwater Horizon rig (leased by BP) in the Gulf of Mexico on April 25, in which 11 crew members were killed. Although the explosion’s cause has yet to be determined, the likeliest explanation now seems to be pressure surges, which can become more dangerous as drilling goes deeper. Exxon abandoned its Blackbeard well in 2006 because of excessive pressures and temperatures. The Obama administration caused a brief swirl of speculation that sabotage might have been the cause when it sent SWAT teams to inspect other area rigs.

Failure to cap the well (now estimated to be leaking about 5,000 barrels per day), and a lack of “fire booms” that could have been used to burn off the oil – despite a 1994 federal plan calling for such equipment to be available in the Gulf, means a considerable amount of oil is going to wash up on area shores.

Although the spill’s short-term impacts on crude prices will likely be minimal, the longer-term implications – i.e., stricter regulation and less offshore drilling activity – will almost inevitably contribute to higher energy prices.