Oil price Volatility, Until When? 3 May 2016
by The ECSSR

Volatility continues to characterize oil markets due to several causes and factors, especially after the failure to reach a deal to freeze production during the Doha meeting last April 17, as some countries keep on flooding oil markets. Multiple factors, therefore, need to be taken into consideration in order to solve the current market surplus crisis.

During the last two years, oil markets have been marked by ups and downs. Last April, a slight price recovery of 48 dollars per barrel was registered triggered by the fall of the dollar and the retraction of US crude production.

This recovery did not last long. In May prices slumped following OPEC’s decision to boost production in light of the absence of guarantees by producing countries outside the organization. Some of these countries produced more oil in order to make up for the price drop. This trend was reinforced after OPEC’s member countries failed to freeze production in Doha meeting.

The failure to stabilize production was due to slow economic growth and the imbalance between offer and demand propelled by production surplus.

Another reason lies in Iran’s calls for increasing its share of the oil market, which further hinders international efforts to curb production pushing other countries to refrain from any commitment to limit production. With the lifting of sanctions, Iran opted for increasing oil production by 139,000 barrels a day in March compared to February.

Moreover, the Libyan oil company also aims at restoring production to the 2011 levelof 1.6 million barrels a day up from 360,000 barrels currently. Reaching such a goal may be possible in 2017 or 2018 due to the damage affected on oil installations in the country.

In conclusion, freezing production would be a step forward to stabilize the market in light of the ever increasing surplus and decreasing demand. Yet, current conditions show that no agreement for such a deal is in sight.

Oil producing countries are called upon to find options in order to address the situation in the oil markets. OPEC is therefore required to put the interest of its member countries and international energy security on top of the agenda despite the tangled oil markets.

The content herein does not necessarily reflect the opinion of the ECSSR