RGE Wednesday Note – Iraqi Oil: A Riddle in the Sands

Oil prices have been on a tear of late, rising almost 6% in a week to close at close to US$87 per barrel on April 5. Despite a subsequent sell-off and the fact that oil prices seem rather frothy, there do seem to be some upside risks in the short-term, especially since oil market fundamentals kept prices within a narrow trading band from mid 2009 through the end of Q1 2010. As we’ll describe in more depth in the forthcoming RGE global outlook, strong growth in Emerging market economies and accommodative monetary policy globally, as well as a closer to balanced oil market, should continue to provide modest support for oil prices. But if oil prices remain above US$100 per barrel for long, higher prices could begin to choke off weak consumption, especially in the U.S. and in dollar-pegged commodity importers, in turn dragging oil back down.