Rising inventories in the US and a fall in the projection at which the Chinese crude demand is growing is beginning to dampen the global crude markets. Oil has finally been on a losing streak — an unusual though not an altogether unwarranted development in some senses.
And in the midst of all this, the global majors — the seven most industrialized countries of the world — continued to clamor for steps to cool down the crude markets. And this was despite the fact that most of developed countries agreed that firmer than normal oil prices have not derailed the economic recovery as yet.
Oil may still be very important to sustain growth in global economies, yet the fact remains that the black gold has over the last few decades lost some of its influence on the global scene. It is no more the single most determining factor for the state of global economy, as it was in the early seventies and eighties. Oil’s role has definitely diminished. Even the industrialized world concedes that. Despite abnormal high oil prices for the last four months, “the global economic expansion has remained robust, and the global economic outlook continues to point to sold growth for 2005,” the G-7 said in a statement issued at the end of their meeting earlier this week.
From a peak of $58.28 a barrel that US crude hit some two weeks back, the prices have lost the ground by almost 14 percent. This softening has been made possible by the swelling crude stocks in the US and signs of slower than anticipated growth in Chinese demand.
According to the US Department of Energy, US crude stockpiles for the week ending April 8 had risen 3.6 million barrels to 320.7 million barrels. The private sector American petroleum Industry reported an even higher rise of 4.04 million barrels to 325.34 million.
The IEA also revised downward its global demand projection this year by 50,000 barrels per day to 84.3 million bpd. Chinese demand was also revised downward by the IEA. Chinese demand growth reportedly slowed to an annual rate of 5.4 percent in the first two months of the year, down from 21 percent a year last year.
Naturally the continued downward price spiral has resulted in eyebrows being raised among some of the Gulf oil producers. Conflicting signals are emerging. The current OPEC President Ahmad Al-Fahd A-Sabah hinted earlier the week that the OPEC may have postpone another increase in output quotas until its next meeting. Ahmad, who is also Kuwait’s energy minister, also reiterated he believed prices were almost at a fair level. However, later he seemed to have suggested that the OPEC may increase its output - without actually tampering with the allocated output quotas of the member states.
In the midst of all this, the Group of Seven industrialized nations continued to stress that high oil prices were a “headwind” impeding the smooth flight of the global economy. According to market analysts, despite the softening of crude markets by some 14 percent over the last couple of weeks, the US oil prices were still almost 15 percent higher than at the end of 2004. The Japanese finance minister and the US treasury secretary during a meeting earlier the week agreed that “the stubbornly high oil prices pose a risk for the global economy.”
It has been reported that there was intense talks about the energy situation at the meetings of the G-7, the policymaking committee of the 184-nation International Monetary Fund and the World Bank steering committee.
There seems to be sharp contrast in the attitudes of the oil producers and major oil consumers. Despite what is being professed, the divergence between the two sides is still there, if not growing. This gap needs to be bridged. But for this gap to be covered the industrialized world also needs to concede that the oil producers have the right to “fair returns.” As incidentally most of the oil based economies are still, a single product economy.