In our latest guest analysis, Frank Holmes, CEO and Chief Investment Officer of
U.S. Global Investors, talks about oil prices and the different factors
affecting their levels. In 2011, oil was one of the top performing commodities
among those we track, with Brent rising more than 13 percent. Geopolitical risk
and unexpected non-OPEC supply losses caused oil to rise significantly in early
2011. By October, we saw the black gold sink to a low of $96 per barrel before
rising to its current level of nearly $108 a barrel. Last year's unrest
demonstrated how major oil-producing regions can significantly affect oil
prices. As I've previously stated , according to PIRA, the Middle East
accounts for over 70 percent of OPEC oil production and, along with North
Africa, more than 95 percent of the cartel's capacity growth. A disruption of
the supply chain can also influence oil prices. One of the largest chokepoints
along the global oil supply chain is the Strait of Hormuz, which roughly 90
percent of all Persian Gulf oil tankers—some 18 million barrels per day—pass
through, according to Barclays. With Iran controlling the entire northern border
of the strait, there is a significant chance for disruptions should the country
fall into conflict or war. The story will likely continue into the new year, as
"sanctions against Iran, including a possible European Union oil embargo, and
fear of an Israeli attack on Iran's nuclear facilities led 2011 to close on a
bullish note" for oil, said PIRA Energy Group in their new report today.
Additionally, there's new political uncertainty in Iraq that may keep oil
elevated. The chart below sums it up: With more than 40 percent of the world's
oil controlled under autocratic rule, oil supply in democratic nations likely
depends on the state of autocratic nations. Read The Many Factors Fueling a
Return to $100 Oil
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