Last updated: 14 November, 2013

Easing Middle East tensions is pushing down the oil price

A recent plunge in oil prices reflects a perceived easing of Middle East tensions and record non-OPEC supply, but strains in the market could soon reappear, the IEA said on Thursday.

Raising slightly its estimate for global consumption of oil this year because of unexpectedly strong European demand, the International Energy Agency said that the oil price fall had been “especially dramatic”.

The IEA said in its monthly review of the oil market: “Oil prices have staged a spectacular reversal since their summer rally.”

In Singapore early on Thursday, the benchmark price of West Texas Intermediate oil edged up by 11 cents to $93.99 dollars per barrel.

Noting that prices for oil on futures markets had plunged by more than $15 dollars per barrel at the end of October and into November, the agency highlighted four main factors.

These were: a deal with Syria over chemical weapons early in September; hopes of a breakthrough in nuclear talks with Iran; unusually strong seasonal factors; and “record high non-OPEC output”.

Under the headline “Riding the roller coaster”, the agency said that market commentators, who had blamed high prices on “a Syrian ‘risk premium'”, had then placed their hopes on “an Iranian ‘peace dividend'”.

It said: “A string of Middle East news headlines served as a backdrop for this roller coaster,” given that, previously, military strikes against Syria had appeared to be imminent.

But given usual uncertainty about the winter weather pattern in the northern hemisphere, which has a big effect on demand for heating fuel, and about geopolitics, “the market might not be at the end of its roller coaster ride,” the IEA warned.

The agency, which had stressed again on Tuesday the huge changes arising from development of shale reserves in North America, said that this year seasonal swings in supply and demand had been “especially dramatic”.

These swings had been compounded by big structural changes in supplies of hydrocarbon energy and in global refining. These factors had also been “a powerful driver” of easing tensions on the oil market, it said.

The IEA, the energy monitoring and policy arm of the 34-member Organisation for Economic Cooperation and Development, raised its estimate for growth of global oil demand this year by 45,000 barrels per day to about 1.0 million barrels per day (mbd), taking total demand to 91.0 mbd.

This was because of “a spate of higher-than-expected third-quarter demand data” mainly from Europe, led by demand from Germany, France, Britain, Italy and Turkey.

The agency said that it expected demand next year to grow slightly faster by about 1.1 mbd to 92.1 mbd “as the underlying economy continues to improve”.

Global supplies of oil grew by 0.6 mbd in October to 91.8 mbd on record high output by countries outside the Organization of Petroleum Exporting Countries.

OPEC supplies fell in October for the third month in a row, “led by a cutback in Saudi output,” the IEA reported.