Rollercoaster
过山车
Another leap. Where next?
油价如同过山车，下一个拐点在哪里？
Jul 7th 2012 | from the print edition
BROADLY, two factors govern the price of oil. One is actual supply and demand, the other market sentiment about the state of the world. The fundamentals change slowly; the market’s mood is more volatile. Both have sent the price careering up and down in recent weeks.
In March fears that the Iranians might do something dramatic in the Strait of Hormuz, cutting off supplies to global markets, helped to propel the price of a barrel of Brent crude to over $128 (see chart). Since then oil has sagged by 30%, to a low of $88 a barrel on June 22nd, as intensifying worries over the euro-area debt crisis and fears of a sharp slowdown for China’s economy darkened prospects for demand.
The supply side also weighed on prices. For some months Saudi Arabia has been pumping oil at its fastest rate in 30 years to make up for Iranian crude lost to American and European sanctions, which officially started on July 1st. Plenty of Libyan oil is also back on the market. Oil from America’s shale fields has all but plugged the gap caused by disruptions to supplies from Syria, Yemen and South Sudan.
The emotional rollercoaster is now climbing again. On June 29th oil markets responded to the latest euro summit with undisguised, and unmerited, glee. The price of Brent crude leapt by 9%, the biggest one-day advance in three years, and has since risen to around $100 a barrel. The fundamentals and the fear factor suggest the price will remain there for a while.
First, demand remains surprisingly perky even though Europe’s consumption dropped by over half a million barrels a day (b/d) in the first three months of the year. Japan’s thirst grew by 400,000 b/d (to generate electricity that nuclear power no longer supplies); Americans put more petrol in their tanks in April than they did a year ago, the first such increase for 16 months; and Chinese demand, despite a sluggish May, has grown by 2.6% in the first five months of the year compared with the same period in 2011.
Demand is expected to strengthen in the second half of the year as a seasonal boost is buttressed by a recovery in China and the resumption of deferred infrastructure spending there. Most analysts reckon that worldwide consumption is set to grow by around 1m b/d in 2012.
Second, the supply picture is looking less promising. Iranian sanctions could take more than expected out of the market—perhaps as much 1.4m b/d. The Chinese, hitherto regarded as likely to mop up the Iranian oil that no one else would buy, have joined other countries in promising to reduce imports in return for a waiver on sanctions from America. Countries like China will be obliged to take even less Iranian oil over time to continue to avoid American attention. Meanwhile, European action against Iran means that oil tankers insured by companies operating in the EU—as are nine out of ten vessels in the global fleet—and carrying Iranian oil will lose their coverage if they continue.
There are signs, too, that Saudi Arabia has stanched the flow of oil a little of late, in order to prop up prices. The country’s oil minister, Ali Naimi, has said that $100 a barrel is fair. The Saudis are reckoned to need $80-85 a barrel to maintain a programme of lavish social spending designed to avoid an “Arab spring” in the kingdom. Iran, Iraq, Algeria and Venezuela rely on an oil price above $100 to keep spending on track and want the Saudis to cut production more. That they are unlikely to get their way should help to temper the market’s mood swings for a while.
