Oil and Gas

No longer over a barrel?

David Smith turns his attention to oil prices in today’s Sunday Times and asks why the spiraling cost of crude has not hit global economic growth and inflation as much as in past oil shocks. Most of the recessions and major slowdowns in the global economy have been pre-dated by spikes in international commodity prices. Has oil now lost the power to shock?

Chart of the Day: The Falling Dollar and Oil at $110

Crude oil prices are spiking higher again driven higher by signs of further reductions in oil stocks (inventories) - which creates a stampede among investors to buy whatever stocks might be available - but also by the continuing decline in the value of the US dollar. Covered in this BBC news article and also here in the International Herald Tribune.

Revision: OPEC

This revision note focuses on the role of OPEC in the global oil market.

Keep an eye on oil futures

Spot what is happening to the futures price in the market for black gold. OPEC, the 13-nation Organisation of Petroleum Exporting Countries has decided to maintain crude oil production at current levels despite pressure from the United States over the soaring cost of vehicle fuels and heating oil. The producer cartel met in Vienna to discuss the state of the market and opted to hold output steady. Indeed they have hinted that the next move in OPEC oil supply (which accounts for around 40 per cent of the world’s total) will be lower anticipating the effects of an economic slowdown in the United States.

(BBC) Oil rises past $105-a-barrel mark

$103 Crude Oil and the Declining Dollar

So crude oil prices are now well established above the $100 mark - my latest data chart for Brent crude oil shows the fuel trading close to $103 a barrel. Sean O’Grady in the Independent yesterday had a neat paragraph explaining the links between demand for commodities such as oil and what is happening in the foreign exchange markets to the value of the US dollar.

“Commodities that are traded and denominated in dollars usually move for technical reasons in the opposite direction to the US currency. A falling greenback makes dollar-denominated commodities cheaper for holders of other currencies, though the scale of recent movements has few parallels. Gold is also a traditional hedge against inflation, especially in Asia’”

I like this explanation. Agressive interest rate cutting by the Fed is one factor behind the fresh surge in world crude oil prices. Dollar weakness is driving oil prices higher.

OPEC’s Balancing Act

I have updated my chart presentation on some aspects of the world oil market and streamed it on the web site. OPEC Ministers are due to meet shortly for fresh talks on output quotas. They face a delicate balancing act. If demand for oil keeps growing strongly and prices remain at or around $90 a barrel, this increases the risk of inflationary pressures amplifying the extent of economic slowdown in advanced nations. Put too much of an expansion of supply might depress oil prices quite quickly and if you are a Saudi finance minister that prospect might be hard to justify. This BBC news audio clip provides a neat short piece on oil prices for students in class. And all of their recent news stories on OPEC and oil can be found here.