This commentary is from USAK’s Energy Review Newsletter
http://www.turkishweekly.net/energyreview/TurkishWeekly-EnergyReview9.pdf
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What determines the price of oil, the black blood of the world’s economy? If we recall the main factors that affect the price of oil, it might be easier to analyze the developments in the oil markets. These are;
- Oil supply
- Demand for oil
- Speculation factor
- Regional unrests
All of these are more or less related with each other and cannot be taken independently. And this week, important developments for the oil markets were observed in the global scale.
On Monday Iraqi government approved the long waited “Oil Law”. This law defines the Iraqi Federal Oil and Gas Council as the owner of natural gas and oil of all provinces and regions in Iraq and also it allows regions to make “production-sharing agreements” (PSA) with foreign companies. It should be noted that there is a long way to go about this law. However, if this law gives impetus the process of oil production in Iraq, it will contribute the tension on the oil prices to decrease in the long term. Iraq has the world’s 9.6 % of proved oil reserves but only can produce 1.8 million barrels per day. When compared with the production of Saudi Arabia or Russia, the production in Iraq is really low.
Secondly, this week former chair of the FED, Mr. Greenspan warned the world about a coming recession in the US. After his statements Chinese stock markets and later the other markets declined drastically on Tuesday. Moreover, these statements caused concerns to emerge about world growth and the oil prices decreased a little on Wednesday and the price of Brent became $59.39 while the WTI’s declined to $60.69.
Source: Energy Information Administration
However, this did not take so long. The announced stock values decreased for the fifth week in the US and this cause the prices to increase once again. The decrease in stocks was 3.78 million barrels for heating oil and 1.94 million barrels for the gasoline. Moreover, the price increase in heating oil continues. The average price of residential heating oil increased by 2 cents per galloon in the US markets.
Source: Energy Information Administration
Lastly, this week the five permanent members -Russia, China, Britain, France and the United States- of the Security Council and Germany discussed toughening the sanctions that are imposed to Iran due to its uranium enrichment program. In December, 23 the Council agreed to impose sanctions on Iran and gave it 60 days to suspend its uranium enrichment program. The week before this 60 days came to an end, but Iran said that it would continue its nuclear program but only for peaceful reasons. This kind of an increased tension causes the tension in the Middle East to increase further and we see its repercussions on the oil markets as the price increases. Since, Iran is the fourth biggest oil producer in the world.
Source: Financial Times
To conclude, oil prices continued its increasing trend this week too. Brent oil was $61.53 and WTI was $61.65 on Friday. The increased tension in the Middle East and decline in the US stocks were effective on this price increase. On March, 15 there is an OPEC meeting in the schedule, but no production cuts are expected for now. Research director of OPEC Mr. Qabarzad was stated two weeks before the level of $60 is acceptable for both producers and the consumers. And he added that it is unlikely for a decision to be taken for production cuts.
For this week, according to a Bloomberg’s Survey, 16 of 40 analysts expect prices to rise where 11 of them expect a fall in prices. 13 of these analysts forecast a little change.
References: Shenk, M. Oil May Rise on Demand, Iran Sanctions, Survey Shows
This commentary is from USAK’s Energy Review Newsletter
http://www.turkishweekly.net/energyreview/TurkishWeekly-EnergyReview9.pdf
To subscribe email to energyreview@turkishweekly.net
