Oil prices trending upward as market evaluates supply-side risks

Modern technologies can help well operators tap reservoirs efficiently and weather turbulence in the market.

The Energy Market Outlook released by Barclays on August 16 highlighted several factors that are currently constricting oil supplies, including maintenance in the upstream segment of the industry and pre-stocking needs related to major refinery expansions in China, Saudi Arabia and the United States.

The bank also noted that hurricane season, which runs until the end of November, could disrupt the operations of offshore oil and gas wells in the Gulf of Mexico, restricting supplies and putting upward pressure on prices. According to the National Oceanic and Atmospheric Administration, the Atlantic has historically produced some of its largest storms in late August and September.

Stable production in North America and improving output in Iraq are seen as countering the pressure stemming from concerns about the aforementioned risks, but crude prices are edging higher nonetheless. According to Energy Trends Insider's Jennifer Warren, one major factor influencing crude prices is the deteriorating political situation in Egypt.

Worsening sectarian conflict in Egypt may pose risk to key trade route

Stakeholders' concerns reportedly have little to do with the threat posed to Egyptian production, which averaged only about 720,000 barrels per day in 2012. According to Warren, it is the risk to the Suez Canal, which connects oil producers in the Middle East to key markets in the West, that is driving up anxiety levels and prices.

According to Barclays, about 8 percent of all seaborne trade passed through the canal in 2011, including nearly 14 percent of liquefied natural gas shipments and 4.5 percent of the global oil trade. During that year, approximately 800,000 barrels of crude and 1.4 million barrels of refined fuels moved through the canal each day, while another 1.7 million barrels ran through a nearby pipeline. Any disruption to these transportation networks could prove highly problematic for economies that depend on the free flow of oil through Egypt.

The Egyptian military increased its patrols of the canal when protests against President Mohamed Morsi began to escalate earlier this year and security forces guarding the waterway have reportedly been kept on alert since the military toppled the Islamist government and began a crackdown on supporters of the former president that some observers say is starting to resemble a civil war. Although nighttime port operations have been restricted in connection with a curfew imposed as part of a far-reaching emergency law, the canal appears to be otherwise unaffected up to this point, with shipping traffic remaining steady.

Lloyd's Market Association has asserted that its analysts see little immediate risk to ships passing through the canal, but the situation remains unpredictable. There is also a reasonable chance that the chaos in Egypt will prove destabilizing for the region as a whole, which could threaten oil production in countries with more significant capacity and cause a more substantial increase in crude prices.

To react to global events and capitalize on market opportunities as they emerge, producers will need to be able to exercise careful control over their production levels. Modern solutions such as the hydraulic jet pump can be particularly useful in this regard, as this technology offers the power and versatility well operators need to extract oil and gas efficiently from any reservoir.