Yo-yo oil price syndrome

By Doug Newhouse |

The International Energy Agency (IEA), an autonomous body which co-ordinates collective responses to major oil supply disruptions for its 28 member countries reports that there has been a worrying yo-yo impact on the price of oil over the last week.

It says that the surge in prices seen last Monday were ‘tempered’ yesterday by reports that Saudi Arabia has increased its output by around 10% in response to oil field closures in Libya. But it points out that the old days of oil selling at between $90 to $95 a barrel are under serious threat.

Some airlines and the International Air Transport Association (IATA) have already voiced serious concern at the volatility in the market, with oil prices strengthening sharply to $112 at one point this week – on the back of developments in Libya.

The IEA says that ‘almost all international oil companies operating in Libya have reported partial or full shut-in of output’, with many western operators still in the process of evacuating staff. 

At the same time, the IEA reports that the vast majority of Libyan ports remain closed due to a combination of bad weather, staff shortages or a cutback in crude flows to the terminals. 

Despite the rise in output in Saudi Arabia, the IEA’s Chief Economist Dr Fatih Birol has warned that even if oil prices return to their pre-crisis levels, they still remain dangerously high and he recently told the BBC World Service that this could pose a serious risk to the global economy.

There is also concern that rising oil prices could see the introduction of more fuel surcharges by airlines and particularly those that are not currently operating a hedging policy.



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