By Shahab Sabahi
Energy and Environment - Policy analysis research group
On June 24th 2011, the Crude oil prices dropped by 5% today alone. It is affected by IEA’s 60 million supply. The trend will not continue and the IEA decision to release the oil reserve is just a quick fix for the high season.
In long term, it is not going to have a major impact. The chief driving force holding up the price of oil has been the fear that the unrest in the Middle East that has spread to other oil producing countries, especially Saudi Arabia, with its neighbour Bahrain. If that would have happened it could considerably cause a huge spike in the oil price. Although Libyan oil cut fuelled the fear and consequently pushed up temporally the prices high, the recent high price has not been so much a problem of oil supply shortage.
Nevertheless if it is expected that the Libyan production will come back on line over the next six months, it then happens that it will not need to seek continuing releases from the strategic reserve, and that probably will not go on for very long.
Long Term Issue: A couple of OPEC countries lack spare production capacities and in the same time suffer quite awful financial situation. They certainly favour the high prices. But they will not be able to keep up and increase their productions to meet the future demands increase. In top of that, the perception of the oil traders and their fears of a worse market condition in the future, influence the oil price too. This is now a bit more of concern about market manipulation. Like 1996, there is a fear that governments will try to influence the oil price in their favourable trajectory, which will not work out well now days. Nonlinear and dynamic interaction between the political decision and economic response of traders implies the trajectory which may not be as same as the governments’ favourable trajectory. The reality is that the west foreign policy objective, in the four decades, has remained unchanged. It is rather dogmatic and static and its effectiveness has faded in the past decade. The reality is the geopolitical balance has tremendously shifted while the foreign policy NOT.
Energy and Environment - Policy analysis research group
On June 24th 2011, the Crude oil prices dropped by 5% today alone. It is affected by IEA’s 60 million supply. The trend will not continue and the IEA decision to release the oil reserve is just a quick fix for the high season.
In long term, it is not going to have a major impact. The chief driving force holding up the price of oil has been the fear that the unrest in the Middle East that has spread to other oil producing countries, especially Saudi Arabia, with its neighbour Bahrain. If that would have happened it could considerably cause a huge spike in the oil price. Although Libyan oil cut fuelled the fear and consequently pushed up temporally the prices high, the recent high price has not been so much a problem of oil supply shortage.
Nevertheless if it is expected that the Libyan production will come back on line over the next six months, it then happens that it will not need to seek continuing releases from the strategic reserve, and that probably will not go on for very long.
Long Term Issue: A couple of OPEC countries lack spare production capacities and in the same time suffer quite awful financial situation. They certainly favour the high prices. But they will not be able to keep up and increase their productions to meet the future demands increase. In top of that, the perception of the oil traders and their fears of a worse market condition in the future, influence the oil price too. This is now a bit more of concern about market manipulation. Like 1996, there is a fear that governments will try to influence the oil price in their favourable trajectory, which will not work out well now days. Nonlinear and dynamic interaction between the political decision and economic response of traders implies the trajectory which may not be as same as the governments’ favourable trajectory. The reality is that the west foreign policy objective, in the four decades, has remained unchanged. It is rather dogmatic and static and its effectiveness has faded in the past decade. The reality is the geopolitical balance has tremendously shifted while the foreign policy NOT.
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