From a peak of almost $58 a barrel, oil prices have lost some ground over the past few weeks. For a change this is welcome. Not only will the consumers welcome it, but also the producers — including the major player Saudi Arabia, who will also be happy with the trend. For they all realize, prices that are too high are not in their long or medium term interests.
For many months though oil was in even higher territory, the real returns to the oil producer was somewhat compromised on account of the weakening dollar. And as soon as dollar started to regain some of its lost ground in comparison to major global currencies, black gold, as other factors are definitely playing their role in stabilizing the crude markets. Indeed the resolve of the oil producers, especially Saudi Arabia to supply to the markets as much oil as was required also has helped in soothing the nervy markets. Even the Saudi government at the highest level, during this week’s cabinet meeting, reaffirmed its determination to keep the global economy well oiled.
Then oil inventories in the United States — the major oil consumer — has been reported to be rising lately quite significantly. The Energy Information (EIA) last week reported that crude oil inventories (in the US) rose by 4.3 million barrels to 334 million in the week ending May 13. This level is 25.1 million barrels - 8.1 percent above the five-year US average for the week. This was the biggest stockpile of crude in the US since June 1999. With the summer driving season, just round the corner, the issue of gasoline inventory was also under tremendous scrutiny. Despite the concern about higher oil prices, as per the largest US travel organization AAA, a record 37.2 million Americans were expected to hit highways during the US Memorial day weekend end this month. According to the EIA, gasoline inventories in the meantime, also climbed by 1.1 million barrels. In fact gasoline stocks were just below the upper end of the average range, the EIA said. This allayed fears in the market that stockpiles won’t be able to match summer driving demand in the US.
In the meantime, OPEC has brought down its projection of global oil demand growth for the year by 80,000 barrels a day to a total of 83.94 million bpd. It now expects the global demand to grow by 1.82 million bpd. “Slower demand growth of the United States or China coupled with large increases in OPEC output since mid-2004 and the substantial efforts by member countries to increase production capacity should remove a large part of the speculative premium in the oil price,’ the OPEC monthly report observed.
OPEC’s downward revision followed the International Energy Agency’s cut in expected demand growth. The IEA forecasts that the global demand growth would slow down to 2.2 percent. This is in sharp contrast to the 3.5 percent demand growth registered by the IEA last year.
Higher than average oil prices have somewhat dented the market’s capacity to absorb additional supplies, analysts in Dhahran, the virtual global energy capital concede.
Things however, may change in the crude markets later this year. A US weather forecast last week predicted that up to 15 tropical storms and hurricanes would form in the Atlantic and Caribbean this year, possibly heralding another difficult season for the oil and gas producing Gulf of Mexico, especially in view of last year’s experience, when similar storms knocked out oil platforms for months.
Some concerns on Nigerian crude supplies have also emerged, as gang violence ahead of Nigeria’s 2007 presidential election may disrupt exports from Africa’s biggest crude oil producer, US CIA’s analysts were quoted as saying last week. Unrest in Nigeria, instability in Iraq and elsewhere in the region and the unprecedented Chinese thirst for oil has been some of the many factors that have kept global crude markets on edge. Despite some apparent easing of the pressure, the markets are still not entirely off the hook!