When the Fed decided last week to maintain its Quantitative Easing, oil prices responded with a $2/barrel rise. But this has been balanced by the diplomatic progress made on Syria, and with Iran in the form of the potential easing of sanctions.
Friday morning—just a day after the UN Security Council agreed to a resolution calling for Syria to hand over its chemical weapons—benchmark oil for November delivery fell 34 cents to $102.69 per barrel in electronic trading on the New York Mercantile Exchange.
In London, Brent crude fell 13% to $109.08 per barrel, largely on the reduction of anxiety over Syria.
There has been a general downward trend in oil prices since the removal of the specter of a US strike on Syria, but Thursday had seen benchmark crude gain 37 cents to close at $103.03 per barrel on the Fed’s announcement and optimism over the US economy. Leading up to that, oil had dropped 5% over the prior five trading sessions.
But it’s not just the Fed’s pump priming or Syria that are dictating the current trend. We have Libya, Sudan, Iraq and Nigeria to consider (among others). Traders have a short-sighted knee-jerk reaction to Libya, which is descending further and further into chaos and whose horrifyingly impotent government is incapable of controlling the country, let alone its oil-producing regions. Still, oil prices recover quickly on news that Libya may soon restore order over its hijacked ports to resume supplies. (But the likelihood of maintaining that order is slim, at best). Iraq is likewise descending into chaos and sectarian conflict, and here the relaxation over the situation in Syria will not be a cure. Then we have the long-delayed start of production at Kazakhstan’s supergiant Kashagan oil field.
But perhaps most significantly, we are about to see a major change in the playing field as Iran gets back into the game—and we go into more detail on this in our premium newsletter this week, Oil & Energy Insider.
Then we have prices at the pump, for the American consumer irrationally obsessed with this, as economist extraordinaire Tyler Cowen points out in an exclusive interview this week with Oilprice.com.
“The shale boom is just getting started, most of all on a global level. And a lot of complicated substitutions are required for shale gas to lower retail gasoline prices, for instance greater use of gas to power transportation,” Cowen tells Oilprice.com. “The US public never has been very rational about the price of gasoline, and don’t expect that to change anytime soon. Gasoline is a price which we see and pay very often, too often. That means voters remember it all too well.”
Prices at the pump this fall have declined for 24 straight days, now averaging $3.45/gallon—or 36 cents below last year’s levels. Prices are expected to drop another 20 to 25 cents in the coming weeks on an uptick in US refining, declining consumer demand and lower crude oil prices.
Before we sign off I thought I’d let you know about some of the other reports in premium this week. Our trader extraordinaire Dan Dicker has tipped an oil services company that could produce excellent returns for investors over the coming months. In Inside Opportunities Dave Forest looks at royalty companies and believes he has found a unique way to play the space – this is a MUST READ report for energy investors. We also have our market forecast and 4 intelligence reports for readers.
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James Stafford Editor, Oilprice.com
