Oil prices registered an increase on Wednesday, the 16th of March 2011, as a number of factors are causing fluctuations in the price. Brent crude closed at USD $ 110.43 per barrel, slightly rising from its price on Tuesday of USD $ 110.25 per barrel. WTI closed at USD $ 97.98 per barrel, while West Texas Sour, Midlands closed at USD $ 93.73 a barrel. Due to the uncertainty looming in the market, traders are trading emotionally, which is contributing to the sharp fluctuations in oil prices.
In Libya, Muammar Qadhafi’s forces captured the rebel town of Ajdabiya, and were now heading to the rebel stronghold of Benzhagi. Although OPEC has repeatedly stated that it has used its spare production capacity to meet the cut in supply from Libya, investors are still wary of a reduced supply of the light, sweet crude which Libya produces, which is heavily demanded by European refineries. If this is true, then oil prices will increase by a large amount.
The unrest in Bahrain took an ugly turn, when the Bahranian security forces, backed by Saudi troops, brutally dispersed the Shi’ite protestors in the capital, Mannan. Although Bahrain is not a major oil producer, there are fears that the protests might spread to Saudi Arabia, where the Shi’ite population is also harbouring grievances against the monarchy. Unrest in Saudi Arabia would spell disaster for the oil market, since a decrease in oil supplies from the world’s largest oil producer would cause oil prices to rise astronomically.
There are conflicting views about how the earthquake and tsunami in Japan would affect the demand of oil from the world’s third largest economy. Although demand is expected to fall in the short run, many analysts believe that there would be a substantial increase in oil demand in the future as Japan shall be looking to make up from the power lost from the damaged nuclear power plants. Barclays Capital estimates that Japan will need to increase its import of crude oil by 143,000 barrels per day. Precisely when this increase in demand is expected from Japan is not clear, which is leading to the speculation regarding oil prices.
All of these factors are raising doubts about the future course of action of the demand and supply of oil, leading to speculative behavior from investors. Unless things become clearer, oil prices are expected to continue fluctuating in the coming weeks.