chapter two - OAPEC

• Organization of Petroleum Exporting countries' efforts played a key role
in restoring balance and stability in the oil market, as the significant
reduction in production carried out by OPEC from the beginning of
January 2009 was a decisive factor behind the downward trend in prices
since the beginning of the year. The continued application of OPEC’s
reduction throughout the year helped reducing the surplus in supply in oil
market.
• International determination to confront the crisis and the actions taken by
some countries towards stimulate their economies had a positive reflection
on oil demand. At the same time, it contributed in spreading the spirit of
optimism that the worst of the crisis had ended in a faster pace than
expected.
• The confidence generated by both producing and consuming countries
alike on the need to stabilize prices at a level higher than it was in the
beginning of the year to ensure the necessary investments for the oil
industry on the one hand, and not adversely affect world economic growth
on the other.
• The impact of U.S. dollar devaluation against other major prices, in light
of the inverse relationship between oil prices and the dollar exchange rate,
especially in recent years with the difference in the degree of change.
• Speculations and investments played a key role in raising oil prices to
levels difficult to interpret within the framework of market fundamentals,
as the daily rates rose to levels more than $ 77/b for OPEC basket, and
more than $ 8 /b for U.S. light crude.
It is noteworthy, since the beginning of the year, the flow of liquidity
to oil markets increased for different reasons, including storing oil in large
tankers on the high seas waiting for higher prices, and hedging of the weak
dollar and low return on investment in other assets.
Year 2009 also saw significant developments in the pattern of price
differentials, where the differentials between light sweet crudes and heavy
sour crudes reduced to unusual levels compared with previous years. For
example, the differential between Dubai crude (representing the heavy
crudes) and U.S. light sweet crude reached around $0.1/b only in 2009
compared with $5.8/b in the previous year. The price of Dubai was $0.2/b
above Brent in 2009 while it was lower by $3.2/b in 2008. The same applies
for the price of OPEC basket, which was $0.9/b lower than the price of U.S.
light sweet crude in 2009 compared to $5.2/b higher in the previous year.
The price of OPEC basket also $0.6/b lower than the price of Brent crude in
2009 compared with $2.6 / b higher in 2008.
Those developments in price differentials can be attributed to several
factors, including: