After a decisive increasing trend, oil prices have begun to decrease since August 2006. This pattern has not changed with the New Year. Some reasons have been suggested for this downward trend; such as decrease in demand for oil due to slow down in the world’s growth, increase in inventories and now mild weather. It should be noted that in oil prices more than one factor is effective and for this time of the year weather is a priory determinative factor for oil prices, since the temperature fluctuations are effective on oil demand due to its heating function. Accordingly, now the mild weather can be shown as an important factor for this downward trend of oil prices. As can be seen from the below graph, from the beginning of this year oil prices have decreased almost 13% both in WTI and Brent Oil.

According to Anatolian Agency (AA), OPEC members are not satisfied with these price decreases, OPEC closely follows the developments in the oil markets and if it would be necessary OPEC could take initiative to maintain stability in the oil markets. However, it is argued that the taken decision to cut down production starting from November 1 has not been realized according to a Bloomberg survey in November 2006 daily production decreased 550000 barrel and 245000 barrel in December, this causes doubts to grow about OPEC’s cut down decisions. (Shenk, M., 2007) When this factor carefully examined it can be said that the precautions that was taken by OPEC in November to prevent the price decreases in oil markets have not been effective, since oil supply has not decreased 1.2 million barrels per day as expected.

What to expect from the future:          

For the next week according to a Bloomberg’s News Survey 20 of the 47 analysts expect this decreasing pattern to continue whereas 16 of them expects a price increase. (Shenk, M, 2007)

It should be recalled that the decision taken by OPEC on December 14^th to cut down oil supply for 500.000 barrels a day begins in February 1. This might negatively affect this downward trend in the short term. Moreover, problems that can occur in the delicate supply areas like in Iraq, Nigeria or in Iran can cause price fluctuations.

Resources(Bloomberg)