Oil prices bull run set to continue
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Oil prices bull run set to continue

Oil prices bull run set to continue

The Organisation of Petroleum Exporting Countries' (Opec) annual meeting in Vienna on September 11 comes at a time of mounting tension between crude producers and consuming countries.

    There has even been a move in the US Congress to pursue a legal action against the organisation for alleged price fixing. Opec countries control 75 per cent of global oil reserves and produce about 40 per cent of the world's crude.

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    More than anything else, the major consuming countries led by the US would like to see an increase in production announced. In spite of prices moving steadily upward through the summer, Opec's members have shown little inclination to do this.

    Expansion of their economies is predicated on rising revenues and governments are wary about the timing of any production increase that might tip crude prices into a downward spiral.

    Opec officials argue that the reason prices are higher is due to refinery bottlenecks and speculative money in the oil market with the result that any increased output would be stockpiled rather than directly meet consumption needs.

    The weakened dollar, in which oil and all other major world commodities are priced, is also a factor in strategies. UAE Oil Minister, and OPEC President, Mohammed bin Dhaen Al Hamli points out that when adjusted for inflation, and the dollar's lower value in forex markets, the cost of a barrel of oil is no higher than it was 30 years ago.

    Oil demand to rise

    However, output in non-Opec oil producing countries such as Norway, Mexico and the UK is falling, causing the International Energy Association (IEA) to warn of a supply crunch within the next five years.

    Opec forecasts that global oil demand in 2008 will rise 1.5 per cent to 86.9 million barrels per day (bpd). However the International Energy Agency envisages demand rising considerably higher at 2.5 per cent.

    Steadily increasing consumption by producers of their own oil is also eating into export capacity and could reduce crude exports by as much as 2.5 million bpd by 2010. A report by Canadian Imperial Bank of Commerce (CIBC) says that if this supply gap is not filled triple digit oil prices are on the horizon and likely to stay.

    Goldman Sachs argues that an increase in production is needed to prevent oil prices going above $90 a barrel in the next four months.

    The cartel's Vienna meeting may decide to assuage political pressure by agreeing some increase. Opec Secretary-General Abdullah Salem el Badri has stated that the comfort level for members is more than $50 a barrel but a price above $80 would also cause concern.

    $100 a barrel in sight

    OPEC has 3.5 million bpd of potential production capacity that it could activate, of which 2.8 million bpd could be drawn on within 30 days according to IEA estimates. However, not all are convinced that sufficient can be done to prevent the upward movement of crude prices.

    US investor Boone Pickens forecasts that world oil prices will soar to more than $80 a barrel in the next 8-10 months. The CIBC predicts the $80 mark will be reached sooner and hit $100 by the end of 2008.
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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