Rising Oil Prices: Like Gold, All Investor Fears, No Fundamentals

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oil refinery at night

Oil inventories may not affect short-term price outlook.

We’ve seen oil prices rise recently due to concerns in the Middle East (Syria’s violence escalating, and Libya showing oil exports and production at the lowest levels since the civil war in 2011), and in Nigeria, where industrial-scale oil theft, sabotage and technical problems have hit output massively.

Fortunately, according to the WSJ, global oil inventories remain at healthy levels.

Combined government-held and commercial oil inventories in the major industrialized countries that make up the OECD were sufficient to cover 93 days of forward demand at the end of June. That compares with 91 days of forward demand coverage in June 2011, when the International Energy Agency (IEA) led a coordinated drawdown of 60 million barrels of oil from inventories to cover supply shortages caused by the Libyan civil war.

The option remains, if oil prices spike, to do the same again – but how bad will the price rise have to get before action is taken?

An oil price spike will be driven by investor fears, and the hard logic of individual country production and inventory levels will only have a mitigating, not a preventative, effect. Already we have seen a sell-off in shares and the gold price back over $1,400 an ounce, hitting over $1,430 in trading yesterday.

The oil price, meanwhile, has been rising in lockstep with tensions over Syria, and currently trades at more than $115 a barrel for Brent crude.

What impact would higher oil prices have on your business and the materials you buy? Definitely something to strategize over, because some contingency planning may be in order.

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