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Oil rises on King Abdullah’s death

Oil PumpsBefore we start this article can we please reiterate that the oil price has an extremely limited impact on the price of gas or electricity beyond normal economic factors, however the collapse in the price in crude oil is now forecast to end in 2015.

The International Energy Agency (IEA) has forecast that the:

“Signs are mounting that the tide will turn [in falling oil prices]”

It has long been suspected that the OPEC countries had intentionally sustained high production levels in order to weaken prices in an already buoyant supply market so as to reduce the economic production point of non-OPEC rivals such as the US and Libya.

The IEA now believes this tactic of short term pain for long term gain will soon pay off for OPEC with the shale oil revolution being priced out of the market and OPEC available to fill the supply gap.

The IEA cautioned:

“How low the market’s floor will be is anybody’s guess but the sell-off is having an impact. A price recovery — barring any major disruption — may not be imminent, but signs are mounting that the tide will turn.

“A non-OPEC production [growth] pullback as early as this year, more towards the second-half, means that the sloppy market conditions seen today will start firming up, or at least will stop getting worse”

That however was before the death of Saudi Arabia’s King Abdullah bin Abdulaziz al-Saud, announced today. The regent had been a strong advocate for the policies of the prime mover in OPECs oil glut strategy, Ali al-Naimi the Saudi Oil Minister.

With his advocate gone al-Naimi could face pressure internally to assuage his policy of enhanced production potentially pulling the rug under OPECs moves of the last 6 months.

Already the price has jumped, not a surprise on any unexpected news event, however the market next week will provide more clues to the sentiment in the market and whether the OPEC status quo will continue or whether we’ll see the oil price revert to norm.