Nothing could really stop the falling price of oil as it slumped from $147 last summer to well under $40. The recession caused too big a drop in demand. OPEC was repeatedly humiliated by tightening production only to see the price of crude drop more.
Most analysts expect OPEC to cut production again in the new year. Perhaps another cut of two million barrels a day will do the trick.
In the meantime, what normal supply and demand could not do is getting done by a small war that energy traders think may turn into a larger one. It is a good and honest way to make money even it if appears unseemly.
Fighting between Hamas and Israel in the Gaza Strip has killed several hundred people. Israel is calling up its reserves and sending troops to the border. Crude oil prices were up Friday as the early battles took place. It is up again today, nearly 5% to close to $40.
There has always been the threat that unrest in Venezuela, Nigeria, or the Middle East could bounce crude much higher. Some violence in Nigeria earlier in the year marked a period when oil moved up. That was short lived.
War, which may become more likely as the global economic system falls to pieces, could accomplish what OPEC has not been able to. Conflicts in one region may bump prices a bit. If two regions have trouble, there is every reason that crude could move well above $50.
For now, fear looks like a better motivation for crude prices than OPEC policies. Trading oil based on price increases is a good way to make money again.
Douglas A. McIntyre
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