End of an era of cheap oil


The foundation and the psychology of oil futures

Thus, the dynamics of oil prices in the near term will depend largely on the state of the two fundamental factors and attitudes of the participants of the market of oil futures.

One factor is the demand and supply, and the other - with a small reserve capacity in the global oil industry. The first factor is reflected in stocks of fuel in the United States and is associated with the level of oil in the world. Factor small reserve oil production capacity operates on oil futures market by the risks that threaten the supply of oil to the world market - real or in the eyes of participants in the futures market.

If in the oil-producing countries prevailed calm and there was no terrorist, military or political threat to the mining infrastructure, the likelihood of large-scale and long-term supply disruption would be very low, and low reserve capacity is not so worried about a oil traders.

Importance of the factor of small reserve capacity is strongly dependent on the growth in oil demand. High growth rates were observed in 2003-2004., Came as a surprise both to the oil producing countries in the face of OPEC, and for the major oil consumers - the leading industrialized countries, which represents IEA. As the figure shows, in July and for most of August crude futures market completely ignored the improvement in the balance of demand and supply in the oil market. He was mesmerized by a factor of small reserve capacity and instability in the world. Bullish psychology, took control market has been so strong that oil traders reacted little to reduce risk in Venezuela, which followed the victory of President Hugo Chavez (Hugo Chavez) in a referendum on August 15.

Only events in Iraq - the restoration of oil exports, the settlement of the crisis in Najaf - allowing traders to see a peaceful situation with fuel inventory in the U.S.. The day before when traders "came" that in America a lot of gasoline and distillates enough oil, oil futures in New York and London fell by 3.8-3.9%.

It is difficult to say how to act against each factor and the supply-demand factor small reserve capacity in the short term. Solution to the crisis in Najaf, reached an agreement with al-Sadr, poka reduce tensions in Iraq, but, as shown by sabotage in different parts of the country, has not dropped a threat to oil infrastructure.

In addition, in Iraq, there are other "hot spots", and "pacification" of al-Sadr may be short-lived, as it already happened in the previous months. Thus, Iraq remains "explosive" potential. In this case, it is not known how deep into the consciousness of oil futures market participants entered the thought of a comfortable level of stocks of petroleum products in America. It is possible that the continuing tensions in Iraq market participants return to their former state bull rush.

With fluctuations of fuel inventories in the United States downward oil traders will receive an additional cause for concern. But if confidence in the comfort level of stocks continues, it may not allow the oil futures market to return to "novels for" unless the race is not led by speculators.