Oil prices on the rise, but still lack the stability the OPEC craves
By admin February 26, 2015




After a 60% drop in oil prices between June 2014 and January 2015 which led to a post-2009 low of $45 per barrel, oil prices have returned to a price of $60 per barrel. In Jizan, Saudi Arabia, Saudi Oil Minister Ali Al-Naimi claimed that “markets are calm now” and that “demand is growing.” According to AAA, “the average price of a gallon of gas has increased every day for nearly a month.”

The Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia is one of its 12 members, shifted its policy this past November, with members deciding not to cut their output in light of the price drop, which would have fortified prices sooner. At the time, not all members thought that refusing to cut output was the wrong choice, but the recent recovery in prices has left the Saudis feeling vindicated in OPEC’s decisions.

China’s industrial sector, though China is not an OPEC member, has a huge impact on oil prices. According to Reuters, China being the largest energy consumer in the world and second largest oil user means that “even small changes in Chinese demand can move oil prices.” Therefore, a relative increase of production in the Chinese industrial sector has caused a positive shift in the demand for oil, which then caused the growth in prices we are presently seeing.

According to Energy Aspects, a research consultancy, the worldwide demand for crude oil had finally reached a record high this past December and its pace of growth had been the most rapid in the last 18 months. The low cost of oil has, in fact, increased demand as consumers relish the cheaper prices, as evidenced by rising sales of SUVs and other high-gas using vehicles.

Oil analyst at Global Insight, Simon Wardell, said Naimi’s comments reflect a desire for stability in the oil market. “They want to find out where the floor price is. I think they are indicating that we are not that far off the floor in the current price,” he said. Commodity sales manager at Newedge Japan, Yusuke Seta, also stated that the data from China reflected positive news for the oil market, but also voiced concerns about fluctuations in China’s demand for oil, saying that there is “potential oil demand, but [that] market needs to see more stable and concrete demand from China.”

However, oil prices again sank on Tuesday following a larger than predicted increase of U.S. crude oil stocks, which have seen a surge as oil production supply remains above its demand. OPEC member state Libya has seen struggling exports as well, especially after some of its oil fields suffered through a power cut. These examples showcase the volatility and variability of the factors affecting today’s oil market, and shows that the future is yet uncertain in terms of oil prices.


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Thanks for sharing !

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