Oil market: Whether bear or bull, basic economics still rule

The currently flat oil market has caused some worry among oil-exporting countries with sluggish prices since the second half 2014, leading the Organization of Petroleum Exporting Countries (OPEC) to take stage, deciding to curtail the output by 1.2 million barrels per day in November, which was again renewed in May in association with non-OPEC producers. OPEC’s decision to cut production for the first time in eight years brought the end of the free oil market and re-introduced market management. However, since the prices are still struggling to reach $50, the cartel’s decision raised questions regarding market rules for the “black gold.”

Speaking to Daily Sabah about pricing dynamics and the impact of OPEC decisions, IEA oil market analyst Olivier Lejuene said that output and demand are the main driving force of the oil market, adding that prices are expected to continue to drive the market in the next few years.

“OPEC decisions can move prices up and down for up to several months, but in the end, the economics of production and demand always re-assert themselves,” Lejeune noted, saying the situation has gained clarity in recent months as OPEC’s initial decision brought prices up by $10 before increased production of shale and other products took prices back down in March. “Prices are now back to where they were before the OPEC agreement, and traders are calling for ‘more cuts’ in order to support prices,” he said.

On July 11, 2008, oil prices hit historic high at $147.27 per barrel over the last couple of days, fueling speculation on future oil trade contracts. At the time, most experts said that market speculation alone was unlikely to have such a profound impact on commodity prices, leading to a reaction from the OPEC that led the U.S. Commodity Futures Trading Commission (CFTC) to launch an investigation into future contracts, ultimately coming to the conclusion that manipulation did not have a striking impact on prices but was rather driven by market…

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