Months after Brent crude prices remained stable within the $108-110 per barrel range, they have risen once again during the last three weeks, in light of a general sentiment in the markets that the world economy is starting to overcome its slowdown. Brent crude thus posted a price of $ 115-117 per barrel. The OPEC Reference Basket (ORB) for 2012 was about $109.45 per barrel, while the ORB posted around $107.29 during the last quarter of 2012, and $109.28 per barrel in January, 2013. In February so far, the ORB has stood at $112.62 per barrel. It is clear that prices will continue to rise in the light of successive positive economic data in the United States, China and the European Union. For instance, the U.S. services sector continued to expand, and according to the latest weekly report by the U.S. Energy Information Administration, demand for oil in the United States has increased. In China, data shows that the country overcame the slowdown seen late last year. In the European Union, the meeting of the European Central Bank Governors last week concluded on a positive note. These positive developments that began to emerge two weeks ago can be seen as an indication that the global economy is recovering, thereby increasing demand for crude oil – leading to higher prices. It was odd for prices to remain constant within a narrow range in the past months, especially in the midst of a global major economic crisis – the European sovereign debt crisis – and slower economic growth at the same time in each of the two top oil-consuming countries the world, namely the United States and China. But ongoing political tensions in the Middle East as a result of the “Arab Spring," and the possibility of closing down the Strait of Hormuz because of the Iranian nuclear crisis, have stirred fears in the markets over the possibility of supply interruptions. This helped prevent a downward slide in prices, which remained stable at the range mentioned above. There were fears by major producing countries in OPEC recently, of the possibility of prices dropping below $100 per barrel. This could cause economic shocks for the producing countries, which had adopted a price of $100 per barrel for their budgets. On January 28, OPEC Secretary-General Abdullah al-Badri, said that OPEC member states, despite the improvement in the global economy, do not need to make further cuts in production, as this step may increase prices. The reason for not cutting production further is that some major countries, despite the improvement in the global economy, continue to face many problems. This underscores the importance of OPEC maintaining a reasonable price level that would contribute in stimulating the global economy and improve demand for oil. Badri said, “There is an improvement in the global economy, but some countries are still facing difficulties. We do not want to cut production if the economies of some large countries continue to suffer." Forecasts point to the possibility of demand for oil increasing by about 900 thousand barrels per day in 2013, or about one percent, bringing the total global consumption to around 90 million barrels per day. These economic forecasts are coupled with a state of instability in Middle Eastern producing countries as a result of the Arab Spring wave of uprisings. To be sure, fears now have moved on from the Arab Gulf to focus on North Africa, because of the instability in Libya, particularly in Benghazi, and the attack in Ain Aminas in Algeria carried out by terrorists who came from Libya. Last week, the New York Times, quoting employees who were present in the Algerian gas facility, said that the primary goal of the terrorists was to burn down the entire plant with all its staff, but failed in carrying this out because of their lack of knowledge of how to operate the vital control centers in the plant, and the shutdown of production and power in the facility as soon as they took control of it. Thus, while taking into account the main factor in the global oil markets (the gradual improvement in the global economy and the possibility of increased demand for oil), one cannot turn a blind eye to the dramatic developments in the Middle East, and the effects of new crises that could erupt here and there in a region rife with problems. These include political turmoil in Egypt and Iraq, the repercussions of the Syrian revolution on neighboring countries, and the outcome of the ongoing negotiations between Washington and Tehran over the latter's nuclear program, as well as the reactions of oil circles to all these developments. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
