LONDON, 26 September 2006 — Oil prices have tumbled about 25 percent in six weeks to under $60 per barrel, confounding expert forecasts of a spike to $100 before the end of 2006.
Since Aug. 7, when Brent North Sea crude struck a historic high $78.64 per barrel, the price has plummeted almost $20 to $59.32 by yesterday - the lowest level for six months.
In New York, light sweet crude dropped also below $60 yesterday, far off its record peak of $78.40 reached in July.
The Organization of the Petroleum Exporting Counties is concerned about a drop in oil prices but has no plan to call an emergency meeting, OPEC sources said yesterday.
“We’re concerned about the level of volatility,” a source said. “It’s too early at the moment, but we are monitoring it,” the source said when asked if OPEC needed to meet before a scheduled gathering in December to consider steps to boost prices.
Only last month, analysts bet on crude futures striking $80 in the short term, with some predicting even a surge to $100 per barrel by the end of the year. But since then a number of easing supply concerns have sent prices tumbling. “Tension in the Middle East and Nigerian oil supply worries were instrumental in keeping prices on the boil, but peace in the Lebanon and a less confrontational Iran seems to have acted as the catalyst, soothing frayed nerves and opening the door for weak fundamentals to come to the fore,” the Center for Global Energy Studies said in a monthly report published yesterday.
Prices have been weighed down also by a pledge from the 11-nation OPEC to keep its output unchanged, a mild hurricane season in the US Gulf and news of a return to production at the biggest oil field in the United States, Prudhoe Bay.
Amid a dive in oil futures, Societe Generale yesterday revised lower its price forecasts for 2006.
The French bank predicted that New York’s light sweet crude would see an average price of $66.59 per barrel this year, compared with a forecast of $69.90 given in June and an actual average price of $56.65 last year.
As for Brent, Societe Generale predicted an average price of $66.14 in 2006, compared with a forecast of $68.80 made in June and an average of $55.14 in 2005.
Societe Generale analyst Frederic Lasserre meanwhile said that the initial plunge in oil prices last month reflected “a simple disappearance... of risk premiums which had built up in June”.
At the end of August, oil prices encountered a second correction phase that resulted in incessant falls caused by forecasts of a world economic slowdown in 2007, he added.
That is a view shared by Simon Wardell, an analyst at Global Insight. “We saw a bit more gloom coming on about the economic growth forecast in the US, and possibly also the news of a Prudhoe Bay re-start which would add 150,000 barrels a day of production,” he said. Wardell meanwhile predicted that oil prices would not fall much below $55, citing solid demand for energy.
“I think the fundamentals (of supply and demand) suggest that prices are going to remain relatively high. The bottom price is probably about 55 (dollars), I don’t think it can go much below that.”