Last week’s sudden rally in oil prices was rather remarkable. Indeed it was the biggest three-day rally since Saddam Hussein invaded Kuwait back in 1990, an event that seemed to herald an end to stable exports from a region that was, back then at least, the fountainhead of the very lifeblood of the global economy.
Fast-forward to 2015 and we’re getting similar swings under far less momentous circumstances.
There were two reasons behind the rally in energy prices last week, a rally that has since faded and reversed itself in the trading doldrums of Monday and Tuesday. Indirectly, prices were affected by a recovery in North American and European equity markets following strong US economic data and an apparent stemming of the stock market plunge in China (which has since resumed). Super-charged asset prices have increased speculative forces in energy markets, with traders keeping a close eye for any turn in the market – a trend that is heightened of late, if not necessarily new.
The more direct reason for the rally, and one cited by various financial news outlets, was an editorial in the OPEC Bulletin, a magazine issued by the Vienna-based organization. This editorial stated that downward pressure on energy prices remains a “cause for concern” and OPEC “stands ready to talk to all other producers.” That such an editorial could produce a rally in energy prices is a triumph of groupthink; or, a reflection of immense pent-up speculative pressures. The key phrase here is “other producers,” which appears to be more of a futile olive branch to Russia and/or shale producers to join in the grand project of price manipulation than it is any indication of future OPEC policy. The Geopoliticalmonitor.com has covered the motivations behind the oil cartel’s moves extensively, and there’s no reason to believe that the glut will be ending any time soon.