How big is the oil price ‘risk premium’?

After an 18 month hiatus the oil market has rediscovered the term ‘geopolitical risk premium’.

Oil supply outages are at their highest level in more than a decade bolstering the risk premium that has helped drive crude oil prices from $35 per barrel back in February to $50 per barrel in early June.

According to energy economist Philip Verleger Jr. the $15 per barrel rise in prices can be entirely explained by recent unplanned outages. The outages removing at least 1 million b/d and up to 2 million b/d at its peak.

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Hurricane season: La Nina could lead to late summer oil price spike

The Atlantic Hurricane Season starts today (1st June).¬†The US National Oceanic and Atmospheric Administration’s (NOAA) climate prediction centre is expecting a near-normal Atlantic hurricane season in 2016.

In its prediction for the season, which runs from June to the end of November, the NOAA expects there to be 10 to 16 named storms, four to eight hurricanes, and one to four major hurricanes, with “major” deemed to be Category 3 or above.

However, other forecasters think activity will be greater, citing the impact that La Nina typically has on hurricane formation.

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Life after 50? Shale oil’s true test as a swing producer awaits

Conventional thinking suggests that US shale oil is poised for a rebound in production now that crude oil futures have touched the ”psychologically’ important level of $50 per barrel.

As I explain in my book “Commodities: 50 Things You Really Need To Know” the supply of ‘shale oil’ is thought to be much more price elastic in response to oil prices than¬†conventional oil production.

Short production lags and high decline rates means that there is a close relationship between investment and production. The consequence of these characteristics is that the short-run responsiveness of shale oil to changes in the price of oil will be far greater than that for conventional oil, potentially dampening oil price volatility. As prices fall, investment and drilling activity will decline and production will soon follow, and vice versa as prices recover.

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