The fluctuations of oil prices today

March 15th, 2012 0 Comments

The price of crude oil has tripled since the start of the Iraq war. He spent about $ 25 before the war in Iraq to a high of $ 78, then fell to $ 50 – $ 60 and was back in the moment more than $ 100. U.S. fuel to service stations approximately doubled over this period.

If the oil price will again increase significantly? Will there be more than $ 150 increase in the near future? What are the possible movements of oil prices in the long run, and what makes it so volatile?

There are factors of short-and long-term factors, the real or financial can. Then, in addition to market forces, there is political pressure on one side of the OPEC (Organization of Petroleum Exporting Countries) to raise prices or keep them from falling (by limiting the production) searches, and the other hand, Saudi Arabia, in consultation with the United States and the West to limit and restrict price increases (by pumping additional oil).

Overall, the crude oil price has gone through cycles since the 1970s. The first major increases were in the first and second oil crisis in 1973 and 1978, the establishment of an oil price of over $ 35 in spring 1980th The real price of oil – the nominal oil prices adjusted for inflation – at their recent summit, which had almost reached the level that is to say at the summit in the early 1980s. But now the oil price seems not too threatening.

Many energy-saving measures have reduced the ratio of oil to GDP. Especially in Europe have such measures the ratio of energy to GDP reduced than half of what it was in the 1970s and new measures to further reduce the ratio of newly announced. But conservation has developed much more slowly in the United States.

But many observers believe the oil price seems to have an upward trend in the long term. And as is pointed out, it oscillates about a lot of volatility. How do you explain that?

In fact, there are a number of theories. In the 1970s and 80s, the oil cartel OPEC has been blamed for the rise in oil prices. From this perspective, the main cause of rising prices in the 1980s had set the oligopoly power of OPEC, prices by limiting supply. OPEC is obviously important. But this power cartel can explain how it seems to be the high long-term trend of oil prices? This seems unlikely, since the cartel often signs of internal tensions – and its largest member, Saudi Arabia, is careful in the rule to its actions within acceptable limits for the United States.

So in the 1980s and 1990s, many people that the world has limited energy resources and the continued operation of them can not keep pace with the growing demand attention. Unfortunately, these resources are quickly exhausted. In the 1990s the growth in the United States from 3.5% to 4% with a strong demand for oil and gas was raised, while the growth rate in Europe was below 2%.

Firstly, in the spring of 1990 the growth in the United States led to a strong demand for energy that has driven oil prices. But in the late 1990s, the oil price was back down below $ 20 per barrel since Europe in a long-term stagnation. Asian countries, including China, have started an economic boom, with growth rates of 8% to 10% and with increasing demand for fuels such as coal, gas and oil. Oil prices began to increase slightly due to growth in Asia (China and India) and especially in the pre-war 2002nd Right at the beginning of the war in Iraq, prices have risen from the low $ 20 to $ 30. But with the long time of war, the oil price has more than tripled.

On the other hand, there are fluctuations in the long-term and short-term volatility of oil prices. Economists have found that the oil is very inelastic demand and supply rather rigid attention.

If it threatens light tapping oil prices as labor unrest and hurricanes, the platforms, or fire, or, perhaps worst of all, geopolitical risks such as war or revolution – especially in the Middle East, where the effects can be as large and dramatic. Small changes or modifications threatened oil supplies will lead to huge price increases. This relationship between high inelasticity of supply and demand, particularly in the short term seems rigid and explains the enormous volatility of oil prices. However, small shocks can cause huge jumps.

But there is another possible explanation that has recently gained in popularity and offers a different account for large fluctuations in oil prices. This leads to believe that the oil price depends in part of the modern financial markets. The Wall Street Journal published an article titled “High oil prices create investment opportunities,” Declaration cites that in recent times, the best stocks not only those who came big oil companies (whose prices are performance in recent years to 40 to 50%), but also in the oil futures markets.

The trade in these markets, not in real time barrels of oil, but on the other hand, the “paper barrels” that are bought and sold. Speculators expect a rising demand and higher oil prices. An excerpt from the Morgan Stanley report published 14th July 2005 describes one way or another, the nature of global competition in this market: “We are buying today, we believe that China wants to buy until tomorrow.” However, the balance sheet total increased in long-term investment contracts of $ 40 to $ 140 billion in 2000 to 2006.

However, once the oil market, these products play a role in determining the value of the assets of companies or shares or rights to the future of oil. The prices in this context, led by a huge influx of funds for future markets. But it is a process of self-care: the massive influx of funds for the purchase of petroleum products will come in part from the high oil prices and revenues in the oil sector.

Moreover, given the low interest rates in the past five years, loans have so cheap and hedge funds have made risky positions, because their purchases lead to higher oil prices. But some of these hedge funds have learned this lesson – what goes up can go down and oil prices continued to fall.

In short, the high oil price reflects not only the usual factors, namely the high rate of global growth, the new demand for oil by India and China, and geopolitical risks in the Middle East. It also reflects the asset price bubble “paper barrels”. For instance, the possibility of what happened, largely due to the enormous problem of information and uncertainty in oil supply.

Currently, its oil prices reflect supply and demand. In the short term, demand is inelastic and supply is usually a little stiff. In the long run, both have more flexibility, but only with considerable effort. Under such conditions, a small change, which have in the supply or demand side, an important impact on prices. This is then amplified by the instability of the activity of speculators in the future market (futures market).