Monday, October 31, 2011

Why is the oil price still so high?

Four months ago, the world's energy watchdog took historic action to reduce oil prices. Since then, the financial outlook has considerably worsened and some Libyan oil has returned to the market. But the price has remained above $100 a barrel.

Releasing 60m barrels of reserves was meant to dampen the high price of $113 per barrel, attributed to lost ouput from war-torn Libya and worries that the Arab Spring could spread to more oil producers.

The International Energy Agency (IEA) made no secret of the fact it was worried that oil above $100 was unsustainable and damaging to the global economy.

Since then, the world's financial outlook has considerably worsened and about 430,000 barrels of Libyan oil have returned to the market.

Surely, amid the doom and gloom, plus extra production, the natural direction of oil ought to be down?

However, the price, though volatile, has remained stubbornly above the $100 level. And last Monday, Brent crude even returned to the $113 per barrel level seen before the emergency release of supplies. more