Rise in Oil Prices

CNN just published a report discussing the reasons why oil has pushed over 50 dollars a barrel. It is important to think about reasons why oil prices fluctuate. And as we see, some of the factors have to do with international relations in the world. They argue that there are three reasons for this. First, much of the concern has to do with rising concerns about the geopolitics of the Middle East. They argue that this stems from Russia’s increased military involvement in Syria, and the effects of political events as it relates to oil production. Second, they argue that U.S. fed interest rates have an impact, saying that “Minutes of the most recent Federal Reserve meeting released Thursday showed the central bank is not in a rush to raise U.S. interest rates. The minutes weighed on the dollar — it was down 0.75% against the euro on Friday — which in turn supported global oil prices. Oil and other commodities are priced in dollars, so a weaker dollar makes them more affordable meaning prices can rise to compensate.” Third, they argue that a decrease in U.S. oil production is also affecting prices.

While these are important factors, it is also important to note a couple of other points. For example, OPEC (and through Saudi Arabia and many of the Gulf states) seem set on maintaining high levels of production. Thus, this will be a key factor in while oil prices are note expected to rise drastically. In addition, because of this, U.S. oil exploration will most likely continue to remain lower on the list f priorities, given the cost-benefit for devoting resources to oil exploration. The events in the Middle East do have an effect on the oil market, but one must keep an eye on OPEC production as well. If production is cut, then one may expect to see further rises in oil prices, and in U.S. and Canadian exploration.