Market perception drives crude oil prices up

OPEC’s latest monthly report suggest that the supposed oil shortage is merely a market perception, and that actual oil supply is enough to sustain demand.

According to OPEC, crude oil prices for March 2012 were about 4.7 percent above February 2012 prices.  OPEC added that this “was supported by supply glitches in the North Sea and East Africa, improving economic data from the U.S. and China, and persistent geopolitical factors which were further amplified by speculative activities”.

OPEC said that the current supply of crude oil is greater compared with last year’s supply. It also projected that oil demand within the oil cartel alone may reach an average of 30M BDP – exactly the same figure reported by OPEC in its latest report.

Meanwhile, the oil cartel predicts that demand for crude oil will relax a bit, prompting them to adjust its forecast lower by 900,000 barrels a day. The foreseen slack in demand supports OPEC’s observation that the oil market supply is very stable. However, if low demand continues to prevail, oil firms may be forced to think twice before further investing in oil exploration and drilling ventures.

Oil prices, on the other hand, had been far from stable with the mounting pressure on Iran; the country has had growing sanctions on its energy and financial sectors, and has reacted to these in a somewhat hostile manner.  This in turn led the International Energy Agency to report a conceivable cut in Iranian oil supply by approximately 1 million barrels a day.

OPEC further stressed that geopolitics is the main reason for the prevailing steep oil prices.  What keeps it up really is the market’s notion of an oil shortage and not actual market forces.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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