(MENAFN- Gulf Times) Uncertainty shrouds the global oil market, which has had an eventful 2015 due to a mixture of demand and supply rather than speculation, according to QNB.
"Oil markets had a memorable year in 2015 and they enter 2016 full of questions and uncertainty," QNB said in its latest research note.
It appears that a mixture of demand and supply factors rather than speculation were behind the latest episode of oil price decline, the note said.
Ruling out speculative forces in influencing oil prices does not mean that the market is any less complex, it said, adding multiple factors could drive supply and demand and some, such as weather or geopolitics, are rather hard to predict.
The oil prices began 2015 by recovering some of the losses incurred in the second half of 2014, rising from $49 per barrel (/b) in mid-January to $68/b in early May. Subsequently, the recovery fully evaporated with oil prices falling to $43/b by the end of August.
A period of stabilisation ensued in the following two months as oil traded in the $45-$55 range. Since early November, however, oil prices resumed their decline and they are currently trading around mid-30s.
Highlighting that oil prices fell by 26.2% from $51/b in early November to $37.3/b on December 31; it said demand factors are the main reason behind the fall as they were responsible for 69% of the decline.
Annual growth in oil demand is estimated to have slowed sharply to 1.3mn barrels per day (b/d) in the fourth quarter (Q4) of 2015, down from 2.2m b/d in the previous quarter. In addition, the International Energy Agency revised down its estimate for global demand in Q4 2015 by 200,000 b/d.
While demand forces were the dominant driver of the recent decline in oil prices, QNB said supply factors also played a role as they were responsible for 31% of the fall.
"This was partly due to Opec's (Organisation of Petroleum Exporting Countries) decision to maintain its production at current levels in its meeting on December 4, which led to a 1.9% decline in prices on the day. In addition, potentially earlier-than-expected lifting of sanctions on Iran also contributed to the decline," it said.
Although the role of speculation was highlighted by some analysts as a factor behind the recent dip in oil prices with them pointing out that bets made by hedge funds on a further decline in oil prices are at a near record high; QNB said it however, "see little evidence supporting this."
In support, the research note said hedge funds make bets on financial paper (like futures contracts and options) and rarely, if ever, take physical delivery of the commodity. "Therefore, they do not impact the real demand of oil and, as a result, do not impact its price," it said.
QNB also stressed that while hedge funds positions are correlated with oil prices, movements in oil prices tend to precede changes in hedge funds positions, not the other way round.
"This suggests that speculative positions do not drive oil prices but instead are driven by prices. This means that hedge funds follow a momentum strategy in which a decline in prices lead them to bet on further declines in the future," it added.
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