Geopolitical worries are keeping prices of crude oil higher than market forces indicate they should be
• The oil market currently suffers serious contradictions. In terms of supply and demand, it is possibly oversupplied. This is not least because higher prices to final consumers are beginning to bite. At the same time prices since June 2012 have increased by around 30%, driven by geopolitical concerns.
• The future price trajectory depends on politicians. Failure to manage the Euro-zone crisis could lead to much lower oil prices, while an Israeli attack on Iran would cause a major price spike.
• Underlying all this is a fundamental dilemma for the Organization of Petroleum Exporting Countries. Its members need higher prices, but these will cause demand to fall and other supplies, including unconventional resources, to increase. This will force prices lower.