Prof. Paul Stevens, Chatham House
Prospects for 2012 are consider against a framework of analysis that examined what happened in 2011 in the ‘wet barrel’ market which includes trading real barrels, based on spot and term contracts; with this market influencing perceptions about surplus/shortage. As well as the ‘paper barrel’ market which includes commercial versus non-commercials and money managers versus speculators; with this market signalling what prices might be. There is frequently a disconnect between the two markets because the money managers “misread” the wet barrel market. In 2011, demand within the wet market was relatively strong, there was very poor non-OPEC performance and the Arab uprisings resulted in a decline in OPEC spare capacity, leading to a very tight market. However, within the paper market the Arab uprisings caused a scare because of a fear of contagion, although the reality was less threatening. For 2012, key issues include the relationship between recession and oil demand, linking to the Eurozone crisis and what is happening within the major industrialized countries; as well as a range of looming geopolitical factors, such as what is happening within Iran, Iraq, the Arab Uprisings and Nigeria. Given these huge geo-political uncertainties, the ongoing economic uncertainties, and the fact that these will play off each other, it is suggested that for 2012, oil price and oil markets are in for a very rough ride.
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