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Oil Prices: Causes Of Fall And Rebound

The energy sector is going through a strong downward spiral that nobody remembers since at least the 90s. Lately, the attention of investors and media is directed to the fall of oil prices causing the collapse of most of the financial markets.

It seemed that this trend had to continue for a long time, but on Friday the price of oil experienced a strong rebound upward. WTI oil was able to conquer the highest daily gain in percentage of the last seven years.

The price of WTI oil for March delivery rose to $ 29.44 a barrel, a rise of 12.3%. The price of oil had not recorded a rise so vast in one day from January 2009. Brent for delivery in April has gained 11% to close the session at $ 33.36 per barrel.

In this article we will try to investigate both the causes of the decline in recent months and the sudden and unexpected rise.

Before Friday, the 12nd of February, the price at which they were traded WTI (US benchmark) and Brent (international benchmark) were, respectively, $ 27 and $ 30 per barrel.

The main cause of the drop in oil prices was mainly due to an imbalance of supply and demand.

In recent years, the United States, as well as Canada and Iraq, have increased their oil production, reducing imports of foreign black gold.

Saudi Arabia, Nigeria and Algeria have had to look to the Asian market to find new buyers but the slowdown of the Chinese economy has caused a drop in the demand of oil in Asia.

Also Europe and the rest of the developed markets are suffering from the economic point of view, and the vehicles are becoming more efficient with alternative energy sources.

All this forced producers to cut oil prices.

The biggest beneficiaries of low oil prices were the US. Thanks to cheaper gas, they have increased their savings and spending power.

Over the main production countries, even oil companies has suffered because after reaching record levels until 2014, they are now greatly diminished, closing their plants and to lay off many employees.

The central factor in this whole affair, however, is to identify in the role of OPEC (Organization of the Petroleum Exporting Countries), an intergovernmental organization made up of 12 oil-producing states, led de facto by Saudi Arabia.

OPEC, despite the pressures of small producers, has refused to intervene several times by cutting oil production to balance prices, and above all to not lose its market share.

Among the causes that have pushed up the price of oil on Friday there is exactly the new possibility for a coordinated production cut. This was what the energy minister of the Saudi Arabia said to the members of OPEC during the evening of Thursday.

It would not be enough however to stop production at current level, but the change would occur if OPEC will decide to cut the production at least from 32.3 million barrels to 31.5 million barrels.

Experts however, lead the rise to a technical rebound caused by oversold because oil prices have managed to raise above the resistance levels on Friday. Only if it would create new highs above the new range achieved, then we could confirm the trend change.

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