Are Skyrocketing Oil Prices Justified by Fundamentals?

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This ECMI Commentary by Piero Cinquegrana considers the phenomenon of the six-fold increase in oil prices over the last seven years and asks whether this massive increase is justified by fundamentals or is the result of a speculative frenzy in commodities driven by bear markets in bonds and stocks. Piero concludes that the sheer complexity of the oil market does not vouchsafe a simple explanation for the surge in oil prices. In the long-term, reduced spare capacity, increased demand and burgeoning extraction costs suggest that oil prices are bound to remain both high and volatile. In the short-term, however, it is a combination of speculation, changing expectations and general uncertainty that has led to the surge in oil prices.