The run-up in oil prices was propelled by the continued reduction in oil production by Saudi Arabia, early optimism about the economic prospects of the PRC, geopolitical tensions, and strong financial...
market activity. Saudi Arabia reduced
production from an average of 9.8 million barrels per day in September to 9.1 million in January 2013, largely on account of lower seasonal demand in its domestic market. On the other hand, positive economic news improved the outlook for the PRC as its GDP growth climbed to 7.9% in Q4 2012 and the purchasing managers’ index remained positive since October 2012, indicating sustained expansion in manufacturing.
Geopolitical risks heightened as terrorists attacked an Algerian oil facility, Israel launched a series of airstrikes on Syria, and the US implemented additional sanctions on Iran. The upsurge in crude oil spot prices mirrored the gains in financial markets as the Standard and Poor’s 500 index breached the 1,500 mark on 25 January for the first time since December
2007, while—in another first in more than 5 years—the Dow Jones Industrial Average index rose above 14,000 on 1 February (Figure A1.19). The broader financial market rally was supported by US jobs and manufacturing data that were
better than expected. Consequently, spot oil and futures prices reacted positively to the signal of increased demand.
However, afafter reaching the initial peak, Brent crude prices started to decline, wiping out the initial 2-month price increase with a price decline of 8.5% in 1 month down to $110 per barrel on 12 March 2013.
Weak economic statistics from Europe and the PRC dampened earlier
optimism. The euro area January unemployment rate climbed to 11.9%
from 11.8% in the previous month, while the PRC’s purchasing managers index unexpectedly declined further in February to just slightly above the manufacturing expansion–contraction divide.
---Source: Bloomberg (accessed 16 March 2013). http://www.bloomberg.com/energy/
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