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Will the rise in the oil price continue?

According to the Organisation of Petroleum Exporting Countries (OPEC) the answer is “yes”.  After prices fell last year from $150 a barrel to $30 a barrel, there has been a recovery. Yesterday, oil prices rose above $65 a barrel and the secretary-general of OPEC said that “We are beginning to see light at the end of the tunnel.” The organisation said that it saw demand picking up, particularly in China, India and Asia in general, and expected that a global recovery would push oil prices into the range of $75-80 a barrel.

 

The recent movement in prices can be seen in the graphic below.

 

oilpricemay09

OPEC has made three major cuts in output since September 2008 which amounted to about 5% of global oil demand, but over the last month or so there has been a slight upturn in production. Since oil is a derived demand any projected increase is seen as a sign that the global economy is getting back on its feet. Recent OPEC oil production can be seen in the chart below.

 

opecoilsupply

However, the International Energy Agency (IEA) published a major oil market report on 14th May and in it they noted that oil prices had strengthened saying: “Oil futures have moved higher in tandem with stronger global financial markets. Yet, new bullish macroeconomic sentiment has not yet produced signs of oil demand recovery and oil market fundamentals remain weak.”

 

In fact the IEA has revised down its forecast for global oil demand this year by 0.2m barrels/day and now predicts a total oil demand of 83.2 mb/d, which is 3.0% below the total for 2008.

 

Is OPEC just talking the market up? Will they be able to control production sufficiently to push up prices further? The sensible argument would say that it is just too early to call, and that although there are signs of some global upturn, with India just announcing a 5.8% increase in GDP in the first quarter of 2009, it is probably from the East that we should look for the first green shoots of recovery.

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Posted in International, Oil, OPEC

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