Anticipating oil price rises can be as fatal as any other form of speculation.
Take the “failure” of the ministerial meeting in Doha of OPEC a couple weeks ago. What might have appeared temporary good news for oil-dependent developing countries such as Barbados has not been reflected in oil prices. Initially, oil prices dropped as anticipated, but by less than US$2 a barrel. But subsequently there has been a steady rise to just over US$51 a barrel.
The meeting of OPEC oil ministers did not agree on either a cut in oil production or a cap, both of which could have helped oil prices to rise at a time when oil producers such as Venezuela are suffering economically.
Oil prices then dropped surprisingly less than US$2 a barrel from the earlier market rally to $50. This might well have fuelled speculation, discounted by one analyst, that OPEC no longer has the influence it had in the past. But a very knowledgeable source says the Saudis can still wave considerable influence on markets and prices.
The question for countries such as Barbados is: what will happen to prices in coming months? If they were to fall to as low as $40, this would be good news for countries that have started to hedge, such as Jamaica. An experienced energy analyst contends it is all speculation to figure out where prices will end up in coming months.
In mid-January, oil prices were at a record low of US$25 a barrel. In April, oil prices were at $38, which would still have been an excellent price to hedge at. Subsequently they have increased to just over US$51 a barrel –– over 50 per cent higher than the mid-January low of $25.
Oil price rises hurt small developing economies such as Barbados’, since more foreign exchange is required to pay for oil imports. But lower oil prices also hurt the renewable energy sector as the incentive to invest is reduced.
(Hallam Hope is a communications specialist and commentator.)