Oil Price Increasingly Impacted by Political Stress Factors

Never before has such a welter of issues weighed down on the price of oil. No longer simply a  matter of supply versus demand or the production whims of OPEC, we have the additional unpredictability of new 'states', some self-styled like ISIS or more legitimate like South Sudan, becoming producers or new Governments like that in Iraq, resuming production to higher levels.

Territorial disputes such as that between China and Vietnam in South China Seas causing international stresses or even worse situations, like that in the Ukraine, actually flickering into open warfare are further serious factors.

Conspiracy theorists, if they are to be believed, maintain that the price of oil can be manipulated and used as a diplomatic weapon to isolate offending states.  

Additionally we have the development or otherwise of competing sources of energy, such as shale gas, nuclear and renewables, to be thrown into the balance. 

Political risk factors are generally agreed to be growing in weight as determinants of oil price movements, if they are not indeed already the dominant ones. They are of course much less susceptible to traditional risk management techniques and quantitative analysis. Be sceptical of terms such as 'new oil price paradigms.' When oil sailed above 100 US dollars a barrel several years ago, commentators were urging us to recognise a 'new paradigm'. We may agree with the song that 'diamonds are forever' but the price of oil certainly is not. 

Inenco, the UK's leading energy consultancy and procurement specialists, have produced a graph depicting a year in the life of oil and gas prices taking into consideration factors such as the political situation in Ukraine and Russia, the insurgency in Iraq and a 'cold snap'.