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|English to Chinese: Oil Price History and Analysis|
|Source text - English|
Oil Price History and Analysis
Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply.
The U.S. industry's price has been heavily regulated through production or price controls throughout much of the twentieth century. In the post World War II era oil prices have averaged $19.61 per barrel adjusted for inflation in 2000 dollars. Through the same period the median price for domestic crude oil was $15.25 in 2000 prices. That means that only fifty percent of the time from 1947 to 2003 have oil prices exceeded $15.25 per barrel. Until the March 28, 2000 adoption of the $22-$28 price band for the OPEC basket of crude, oil prices only exceeded $22.00 per barrel in response to war or conflict in the Middle East.
Over the same period world oil prices averaged $1.51 higher at $21.12 per barrel. The median world oil price of $15.89 was only slightly higher than the U.S. median of $15.25.
The Very Long Term View
The very long term view is much the same. Since 1869 US crude oil prices adjusted for inflation have averaged $18.43 per barrel compared to $19.20 for world oil prices.
Fifty percent of the time prices were U.S. and world prices were below the median oil price of $15.28 per barrel.
If long term history is a guide, those in the upstream segment of the crude oil industry should structure their business to be able to operate with a profit, below $15.28 per barrel half of the time.
Post World War II
Pre Embargo Period
Crude Oil prices ranged between $2.50 and $3.00 from 1948 through the end of the 1960s.
The price oil rose from $2.50 in 1948 to about $3.00 in 1957. When viewed in 1996 dollars an entirely different story emerges. In 1996 dollars crude oil prices fluctuated between $14 - $16 during the same period. The apparent price increases were just keeping up with inflation.
From 1958 to 1970 prices were stable at about $3.00 per barrel, but in real terms the price of crude oil declined from above $15 to below $12 per barrel. The decline in the price of crude when adjusted for inflation was further exacerbated in 1971 and 1972 by the weakness of the US dollar.
OPEC was formed in 1960 with five founding members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. By the end of 1971 six other nations had joined the group: Qatar, Indonesia, Libya, United Arab Emirates, Algeria and Nigeria. These nations had experienced a decline in the real value of their product since foundation of the Organization of Petroleum Exporting Countries.
Throughout the post war period exporting countries found increasing demand for their crude oil and a 40% decline in the purchasing power of a barrel of crude. In March 1971, the balance of power shifted. That month the Texas Railroad Commission set proration at 100 percent for the first time. This meant that Texas producers were no longer limited in the amount of oil that they could produce. More importantly, it meant that the power to control crude oil prices shifted from the United States (Texas, Oklahoma and Louisiana) to OPEC.
Middle East Supply Interruptions
Yom Kippur War - Arab Oil Embargo
In 1972 the price of crude oil was about $3.00 per barrel and by the end of 1974 the price of oil had quadrupled to over $12.00. The Yom Kippur War started with an attack on Israel by Syria and Egypt on October 5, 1973. The United States and many countries in the western world showed strong support for Israel. As a result of this support several Arab exporting nations imposed an embargo on the countries supporting Israel. Arab nations curtailed production by 5 million barrels per day (MMBPD) about 1 MMBPD was made up by increased production in other countries. The net loss of 4 MMBPD extended through March of 1974 and represented 7 percent of the free world production.
If there was any doubt that the ability to control crude oil prices had passed from the United States to OPEC it was removed during the Arab Oil Embargo. The extreme sensitivity of prices to supply shortages became all too apparent when prices increased 400 percent in six short months.
From 1974 to 1978 world crude oil prices were relatively flat ranging from $12.21 per barrel to $13.55 per barrel. When adjusted for inflation the prices were constant over this period of time.
Crises in Iran and Iraq
Events in Iran and Iraq led to another round of crude oil price increases in 1979 and 1980. The Iranian revolution resulted in the loss of 2 to 2.5 million barrels of oil per day between November of 1978 and June of 1979. In 1980 as a result of the Iran/Iraq War, Iraq's crude oil production fell 2.7 MMBPD and Iran's production fell 600,000 barrels per day. The combination of these two events resulted in crude oil prices more than doubling from $14 in 1978 to $35 per barrel in 1981.
US Oil Price Controls - Bad Policy?
The rapid increase in crude prices in this period would have been much less were it not for United States energy policy during the post Embargo period. The US imposed price controls on domestically produced oil in an attempt to lessen the impact of the 1973-74 price increase. The obvious result of the price controls was that U.S. consumers of crude oil paid 48 percent more for imports than domestic production. Of course U.S producers received less.
Did the policy achieve its goal? In the short term the recession induced by the 1973-1974 crude oil price rise was less. However, it had other effects as well. In the absence of price controls U.S. exploration and production would certainly have been significantly greater. The higher prices faced by consumers would have resulted in lower rates of consumption: automobiles would have had higher mileage sooner, homes and commercial buildings would have been better insulated and improvements in industrial energy efficiency would have been greater than they were during this period. As a consequence, the United States would have been less dependent on imports in 1979-1980 and the price increase in response to Iranian and Iraqi supply interruptions would have been significantly less.
OPEC's Failure to Control Crude Oil
OPEC has seldom been effective at controlling prices. While often referred to as one OPEC does not satisfy the definition of a cartel. One of the primary requirements is a mechanism to enforce member quotas. During the 1979-1980 period of rapidly increasing prices, Saudi Arabia's oil minister Ahmed Yamani repeatedly warned other members of OPEC that high prices would lead to a reduction in demand. His warnings fell on deaf ears. The rapid price increases caused several reactions among consumers: better insulation in new homes, increased insulation in many older homes, more energy efficiency in industrial processes, and automobiles with higher mileage.
These factors along with a global recession caused a reduction in demand which led to falling crude prices. Unfortunately for OPEC only the global recession was temporary. Nobody rushed to remove insulation from their homes or to replace energy efficient plants and equipment -- much of the reaction to the oil price increase of the end of the decade was permanent and would not respond to lower prices with increased demand for oil.
From 1982 to 1985 OPEC attempted to set production quotas low enough to stabilize prices. These attempts met with repeated failure as various members of OPEC would produce beyond their quotas. During most of this period Saudi Arabia acted as the swing producer cutting its production to stem the free falling prices. In August of 1985, the Saudis tired of this roll. They linked their oil prices to the spot market for crude and by early 1986 increased production from 2 MMBPD to 5 MMBPD. Crude oil prices plummeted below $10 per barrel by mid year.
A December 1986 OPEC price accord set to target $18 per barrel was already breaking down by January of 1987. Prices remained weak. The price of crude oil spiked in 1990 with the uncertainty associated Iraqi invasion of Kuwait and the ensuing Gulf War, but following the war crude oil prices entered a steady decline until in 1994 inflation adjusted prices attained their lowest level since 1973.
The price cycle then turned up. The United States economy was strong and the Asian Pacific region was booming. From 1990 to 1997 world oil consumption increased 6.2 million barrels per day. Asian consumption accounted for all but 300,000 barrels per day of that gain and contributed to the price recovery that extended into 1997.
The price increases came to a rapid end when the impact of the economic crisis in Asia was either ignored or severely underestimated by OPEC. In December, 1997 OPEC increased its quota 2.5 million barrels per day (10 percent) to 27.5 MMBPD effective January 1, 1998. The rapid growth in Asian economies had come to a halt and in 1998 Asian Pacific oil consumption declined for the first time since 1982. The combination of lower consumption and higher OPEC production sent prices into a downward spiral. In response OPEC cut quotas by 1.25 million b/d in April and 1.335 million in July. Price continued down through December 1998. Prices began to recover in early 1999 as OPEC reduced prices another 1.719 million barrels in April 1999.
|Translation - Chinese|
石油輸出國組織對控制油價很少做得有效率。組織經常面對的是針對一個成員國未能遵守共同協議的申訴。根本的先決條件之一就是要有一個能強制各成員國遵守配額的機制。在1979-1980年油價快速上漲的期間，沙烏地阿拉伯的石油部長 Ahmed Yamani 多次警告石油輸出國組織的其他成員國，高昂的油價會導致需求的下降。他的警告當時沒人理會。急速上漲的油價在消費者中引起了多重反應：新建房屋有了更好的保溫隔熱，舊私人房屋的保溫隔熱也進行了改進，工業生產過程中能源的使用效率更高，還有汽車的每加侖汽油行駛哩數也提升了。
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