BULLS have virtually chased the bears out of the oil markets. Crude prices are oscillating around $55 a barrel. Eyes are now set on $60 mark, as oil prices continue the upward momentum. Some analysts are now expecting that the crude prices may even surge to somewhere around $75 a barrel. “Given that some production is going on around the world, I can’t see it much higher than $75 unless there are disruptions in supply lines,” said Bernard Dan, president of the Chicago Board of Trade, the second biggest US future market.
The OPEC expects demand to stay strong for the remaining part of the year, reaching 81.79 million per day on an average by the end of the year, up from the last month’s forecast of 81.58 million bpd.
In the meantime, the heating oil stockpiles are also reported to be below average across the globe, especially in Japan and South Korea, and there are limited operational possibilities to increase the output.
US stockpiles of heating oil were six percent below 2003 levels, a couple of weeks before and have been building up rather slowly due in part to the lingering impact of the Hurricane Ivan.
These factors would remain the driving force of the market for the next couple of months, and would result in continued speculation in heating oil stocks. Hence in the short term, the price outlook stays feverish, analysts here in Dhahran, the virtual global energy capital concede.
However, the unusually higher crude prices are starting to exert pressure on the growing global crude consumption. “The outlook for economic growth in 2005 has been somewhat affected by the unusually sharp persistent rise in oil prices during 2004,” an OPEC report said.
According to some market estimates, the OPEC member states produced in excess of 30 million barrels a day in September for the first time since 1979.
However, in the medium to long term, it is becoming apparent that the higher prices are starting to have impact on the global crude consumption pattern. OPEC report projected that the global oil demand will rise only 1.61 million barrels a day next year to 83.41 million barrels a day, 130,000 less than projected earlier in September.
The International Energy Agency also cut its forecast for crude demand growth next year. According to the IEA, the OECD energy watchdog, the global crude demand will rise by only 1.45 million barrels a day next year, down from the 1.76 million barrels a day predicted a month earlier.
Oil prices have surged by around 65 percent over the year to date. However, even Alan Greenspan concedes that the soaring energy bill is not posing a real threat to the world’s largest and the dominant economic machine, the United States.
This is basically because the improving technology has already reduced the energy intensity of the industrial countries. “The impact of the current surge in oil prices, though noticeable, is likely to prove less consequential to economic growth and inflation than in the 1970s,” Mr. Greenspan admitted in a speech in Washington mid October. Times have indeed changed. The era of 70s is gone and both, the major oil consumers and the world’s largest producers’ will have to concede. Oil is not necessarily THE cause of concern for the global economy as it was in the 70s.
It is indeed though, one of the causes impacting the global recovery. Other fundamentals affecting the global economy emerging out of a recessionary phase need to be adjusted too. The earlier it is conceded the better it is.
