A Brief History Of Oil
Why Has The Oil Price Been Rising So Fast And Been So Volatile? Explanations for the fast and for the volatility elements are based on different factors. Firstly, simple physical demand for oil has risen dramatically in recent years while supply simply hasn’t been able to keep up, being punctuated by the adventures of the US & NATO in the middle east during the last 10 years. With regards volatility, speculative involvement in the market has also risen exponentially as big institutions have looked to diversify themselves away from paper assets given the money printing experiments being undertaken by most of the world’s major central banks. In fact, there are now much more exchange contracts for future oil delivery than actual real deliveries. The oil market is, quite simply, now much more open to speculation and so susceptible to more violent moves.
Over the last decade, China has been growing at more than 10% per year. The development model for the country relies on public infrastructure investment and on export industries. To develop and grow at a 10% rate, demand for oil products has naturally skyrocketed in tandem. China has, in fact, been the marginal consumer that has contributed the most to the rise in oil demand. Adding to China we have Brazil, India and other populous countries that 10-15 years ago were described as emerging and now have, by any measure, well and truly emerged. With the conflicts in the MENA region and spare production at very low levels, not even OPEC has been able to exert a meaningful dampening influence over prices.
“there are now much more exchange contracts for future oil delivery than actual real deliveries.”
November 2012
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