The oil price, albeit from its on-going historically low base, has risen dramatically in recent weeks, up 10% on the last week alone.
Now the International Energy Agency (IEA) has raised its regular forecast for demand this year and suggests that the oil price trend looks set to continue an upward trajectory.
The IEA points to “unexpected pockets of demand strength in Europe, India and the US” which one could be forgiven thinking that it’s code for:
“It looks like the days of cheap oil are over guys”.
But is it a new market direction or a blip in a permanently low oil market?
As any half aware observer will know, the oil price halved from more than $115 a barrel last summer because of a glut of supply, continued dampened demand and some ever so not too subtle tactics from Opec to keep the wells pumping and to not react with a cut in output.
This struck many as odd, after all more supply and less demand would naturally drive prices lower. So what were Opec up to? After all they stood to lose the most from a price collapse.
Or did they?
The reality is a little murkier, for Opec spotted a very real threat to their market hegemony and set about strangling it, if not at birth then at early adolescence.
The target? The US shale industry. Keeping the US awash with cheap energy and enabling surplus sales on the international market. A huge threat to Opec dominance and one that could not be tolerated.
So Opec kept pumping, safe in the knowledge that their lower marginal cost of production and their abundant financial reserves meant they could weather the resulting short and medium term low prices whilst rendering US shale uneconomic as its marginal cost of extraction sits significantly higher.
That was bad news too for Russia whose dependency on their oil and gas industry for half of their state revenues meant deep recession.
Indeed for once America and Russia could be forgiven for being brothers in arms, calling for a cut in oil production to refloat an industry and an entire economy respectively.
But Opec remain unabashed the group ,crowing:
“US tight oil and Canadian oil sands output are expected to see lower growth following the recent strong declines in rig counts”
But darn it, as if luck would have it, those pesky end users and post recessionary economies have woken up, increased demand and created a recipe for higher prices.
The best laid plans and all….
So whilst the Russians can get the vodka out in celebration and the American’s can wipe the dust off the rigs just now, the likelihood of Opec leaving it here is slim, if not anorexic.
After all, control of the world’s energy market is at stake and it’s not as if this is a game, is it?