Until now three factors were pointed out for the decreasing oil prices; mild weather, problems in the realization of commitments in supply cuts of OPEC members and relatively quiet political atmosphere. Suddenly the trend has changed in the oil markets and the direction of prices has turned upwards.
Nowadays, many people blame the global warming for climate changes and the latest 20-page Climate Report directly supports these claims. Until now global warming in a way served positively for the oil prices to decrease. But this did not take so long and the temperatures have turned to normal particularly for this time of the year. Because of this demand for heating oil increased and this reflected to the oil prices accordingly.


Source: Energy Information Administration

As can be seen from the above chart there is a reverse relation between stocks and prices in heating oil. And this week with the temperature decreases prices increased for the first time in six weeks.
The second factor is OPEC’s oil cut decision. As known in December 2006, OPEC decided to cut oil supply beginning from February 1. And repercussions of this decision and cold weather could be witnessed this week. After decreasing below $50 level oil prices have begun to increase and the momentum has changed. As can be seen from the below chart having a wavy trend oil prices decisively soared almost 10 % in two weeks and become $58 this week. Henceforth, OPEC’s determination on implementation of oil cuts will be important for the cartel’s credibility and potential to affect oil markets. As can be remembered in November OPEC also decided to cut oil supply but Iran and Venezuela did not fulfilled their commitments. Consequently this impacted negatively the expected result from this supply cut. However, this time Saudi Arabia says that it will start production cuts for 158000 barrels per day beginning from February 1 and this is an important indicator in this regard. (Wall Street Journal)

Source: Energy Information Association and Financial Times

For the near future, Chavez’s policies to nationalize oil production in Venezuela represent a potential risk for the oil markets. Moreover, the conflict between USA and Iran has not been resolved yet and the situation in Iraq worsens day by day. It should be noted that these risks are crucial for the speculative price movements.
According to Bloomberg News survey of analysts, traders and brokers, this increasing trend might continue this week. 25 of the 47 of these people expect increase in prices whereas only 14 of them expect a decline.

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This commentary is from USAK’s Energy Review Newsletter
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