Crude Oil market seems comfortable with small risk


AtoZForex.com Lagos  As the OPEC meeting nears, clues are being sought to understand better the path the organisation is hoping to take. Another issue which is recently being addressed in relation to oil prices is the risk of the instability in the Middle East and North Africa. According to Saudi Arabia’s Oil Minister, unrest in the Middle East and North Africa has little impact on oil prices because the market has become “comfortable” with risk.

Ali Naimi, Saudi Arabia’s Oil Minister responded to Questions about the ongoing violence in Iraq, Libya, Yemen, saying there was “very, very small” risk premium in the current oil price.

“This premium is there but fortunately the world is getting very comfortable with the risk,” said Naimi, addressing an OPEC seminar before the cartel’s output meeting on Friday.

“That is why you see that portion is really very small no matter what is happening … in the most productive part of the Middle East. They don’t seem to be affecting production, shipping, demand, supply… The risk premium is there, but it is very very small because of the variabliity of supplies.”

OPEC produces about 30 percent of the world’s oil in the Crude Oil market, and chose to keep its collective production target at 30 million barrels per day in their last meeting, even though lower oil prices slashed revenues for the cartel’s 12 members. This was in an effort to maintain OPEC’s share of the market which was flooded by a vast supply glut, attributed partly to booming US shale oil.

This strategy was engineered by Saudi and appears to have had the desired effect according to analysts since the shale oil producers have higher production costs and where squeezed by the lower costs, pushing a lot of such producers out of the market. This has resulted in an oil price recovery in recent months.

The outcome of the meeting of the OPEC leaders tomorrow is almost certain to result in a carry on of the same level of oil production, as last years’ shock market therapy is seen to have awoken demand and hampered growing competition. Oil prices have now stabilised around $65 (43 pounds) a barrel, about $20 above January lows.

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