Oil began the year at 51 dollars a barrel in mid-January (the lowest level for 20 months), following the refusal of Saudi Arabia to make a further cutback in production quotas, as other OPEC members had requested. Prices began to rise, to over 60 dollars/barrel by the middle of March. The incident between the British and Iranian navies in mid-March pushed crude up to about 70 dollars. Values around this figure continued into April.

In its April report, the IEA voiced its concern over the supply of crude and urged the cartel to increase production. OPEC had reduced its daily pumping rate by 165,000 barrels. Any source of tension in the producing areas or a decline in stocks in the USA gave a boost to the spot prices. In May, for example, the price declined until the end of the month, when tension increased over Iran’s nuclear activities and the incidents in Nigeria. Nervousness caused the crude price to climb to over 70 dollars at the end of July.

At about that time, the International Energy Agency published a new report which reflected the concern over growing demand in China and other emerging countries. The increase in supply would not be sufficient due to delays in some projects in Iran, Iraq and Venezuela. This could get worse in 2012, when surplus production capacity will be dangerously reduced.

Another aspect of the medium-term situation was presented by the US Department of Energy, whose annual report predicted a decline in crude demand across the world from 2015, due to its high price.

The fact is that by the end of July, all the main players in this market (including OPEC) were nervous. The high price volatility combined with fears over the impact of high prices on the economy. OPEC even stated in September that it was not in control of the market or the crude prices. Political conflict, financial speculation and refining problems were more important than the crude market itself. This fear finally forced a nominal production increase in the OPEC countries, which, at their 145th ministerial conference, in September, decided to increase it by 500,000 barrels a day from 1 November. However, the agreement did not stop Texas crude (WTI) breaking the 80 dollars/barrel barrier for the first time in history.

At this time, a clear correlation was evident between the rise in crude and the fall in the dollar’s value against the euro. We were also seeing an effort by the OPEC members to maintain their income in real terms.