Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more


  • Comment
Overview ...

The global supply of oil in the first half of this year has been significantly lower than most analysts had forecast at the end of last year. In particular US commercial inventories have been very low. (In April US inventories were some 100 million barrels lower than during the same period in 1995).

However, many analysts thought oil prices would fall after the United Nations agreed in May to allow Iraq to sell $2bn of oil, (under the humanitarian oil sales programme). Despite expectations of increased supply, the latest brent oil price of $21.28/barrel is not much below recent highs. Why is this?

Partly it is due to disagreements between Iraq and the UN which have delayed the commencement of Iraqi exports. (Commentators now expect these exports to begin in September).

There are also other serious political concerns. Iran and Libya (and by implication the world oil market) have become the main target in the anti-terrorism debate in the US. In particular the relationship between the US and Iran has become increasingly confrontational, heightening fears of US military action. This uncertainty raises the question of the stability of Persian Gulf oil supply, and helps to hold the oil price up.

Sentiment has also changed towards the risk of over-supply. Commentators have become increasingly relaxed about the market's ability to absorb extra supply from Iraq without the oil price falling significantly.

However, OPEC officials still expect the oil price to drop later this year, and have warned members of the cartel to stick to production quotas in order to prevent such a fall. (Some OPEC countries are currently exceeding their official limits-high prices attract high production).

OPEC officials are probably right to worry. The prospect of growing OPEC and non-OPEC supply in the months ahead increase expectations of a fall in the oil price at the end of the year, even if political uncertainty keeps the price higher in the short-term.

  • Comment

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions.

Links may be included in your comments but HTML is not permitted.