New index could help predict political impacts on the international flow of oil

Oil, like certain other minerals, is one of the most highly politicized commodities traded across the globe. When analysts try to predict what countries will be increasing exports, or where they will send their petroleum production, political risk is one of the great unknowns. Policy decisions by governments or other organizations can have tremendous impact on markets, especially when they come as a surprise.

Notable is last year’s OPEC’s policy decision to maintain production and export levels at the November meeting sent crude prices into a tailspin that few, if anyone, saw coming.

To take some of this uncertainty out of policy analysis, the PRIX Index forecasts the effect of political developments on exports from major petroleum-producing countries. The index draws on input from experts on major petroleum exporting countries and looks as factors like government decisions on petroleum taxation or licensing, government decisions on nationalization in the petroleum sector, strikes and other labor conflicts, OPEC decisions, instability in neighboring countries that might spill over, mass demonstrations, riots, revolutions and other conflicts.

The PRIX country analysts are usually residents of the country they report on and are often handpicked for their expertise. “The analysts include people working in the oil industry, ministerial staff, academics, journalists and diplomats,” says Dr. Indra Øverland, head of the Energy Program at the Norwegian Institute of International Affairs, and spokesman for the PRIX Index. “One of the ambitions of the index is to bring together well-informed, genuinely local views from the world’s 20 largest oil producers in the hope that [the index] will give us a slightly better feel of what is coming up rather than just reacting to breaking news.”

PRIX is independent of any institution and its analysts make their assessments entirely independently of one another in order to avoid group think, says Øverland.

Certain aspects of politics, especially when considering conflicts or acts of terrorism, can be nearly impossible to predict, but PRIX can give indications of trends and offer a better understanding of likely outcomes of policy on international oil exports.

“We cannot predict terrorist acts or other political events, but we can give some first-hand information about trends, increasing or decreasing tensions, the political atmosphere, and the apparent likelihood that such events will occur, as seen by local actors,” says Øverland.

The PRIX Index is updated on a quarterly basis. It was updated earlier today, showing a score of 56. The PRIX index operates on a scale of 0 to 100. An index value of 50 indicates that no politically driven change in oil exports is expected; a value below 50 that political developments are expected to contribute to lower exports; above 50 to higher exports.

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