25-04-2016

Rising Oil Prices May Herald Longer Term Global Trend

oil

Three consecutive weeks of slowly but steadily rising global oil prices reflect a still-confused trading picture, but longer term trends could propel them above $45 a barrel or higher, analysts told Sputnik.

“Ultimately, oil is a depleting resource and the market price would be expected to rise with the equilibrium being that the marginal cost of production rises at the rate of interest, unless cartels intervene,” retired Brown University Assistant Professor of Economics Barry Friedman said.

Brent futures closed in New York markets on Friday up 1.3 percent at $45.11 per barrel and US West Texas Intermediate crude at $43.73 a barrel. Both contracts had risen higher during the day’s trading before settling down.
Friedman cautioned that current fluctuations were being exaggerated by both bulls and bears covering the oil markets.

“The financial blogs jump on every headline and predict big moves in either direction. The market has been ranging between $35 and $45 a barrel, not low enough for marginal producers to shut down their wells, according to the talking heads,” he noted.

Even the failure of the major oil producing nations at the Doha talks on Sunday to reach agreement on restricting oil production to shore up prices had failed to send oil prices into any new sustained decline, Friedman pointed out.

“A week ago the rumor of the Doha meeting sent the futures market for oil up to 50. What can you conclude about lack of agreements by the big producers except they don’t trust each other to keep commitments?” he asked.
Friedman said that oil prices could accelerate upwards faster than most pundits were currently predicting.

“What could happen in the future? First, traditional buyers of hedges against increases may back off, such as airlines and power producers, and taking the risk that when prices rise they won’t rise too fast. They may be unpleasantly surprised,” he warned.

Ohio Northern University Associate History Professor Robert Waters told Sputnik that rising oil prices, while good for energy-producing nations around the world, would not be welcomed by the US government because the economic economy under President Barack Obama remained very fragile.

“Today, falling oil prices is good for US foreign policy because it hurts US opponents in Iran, Russia, Venezuela and, many would argue, Saudi Arabia. Lower oil revenue for these countries means less support for Syria’s [President Bashar] Assad, and Cuba,” he maintained.
Lower oil prices also aided US consumers and remaining American manufacturers, Waters added.

“In the United States, the combination of fracking and the lower oil prices it has brought the world is all that has kept the Obama economy afloat and is saving the US economy from falling off the cliff as we instead slide gradually back into recession,” he stated.

Analysts say a stable $45 per barrel is the crucial price to make widespread fracking operations commercially viable across the United States, but many fracking wells have closed over the winter because of prices dropping as low as the mid-to-upper $20s per barrel.

Source: Sputnik News

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