28 May 2007 - 09:24
  • News Code: 105723

Global oil prices could easily rally to record levels above $80 a barrel this summer, analysts forecast due to Middle East tensions, red hot Chinese growth and a reluctant OPEC.

But record high prices will not have the same impact on oil demand as in the past few years since consumers have grown accustomed to it.

London Brent crude, currently seen as more representative of the global oil market, briefly rose on Thursday to a nine-month high of $71.42 a barrel.

“It looks like prices are going to move even higher because of geopolitical tensions and tightness in the US,“ said Christopher Bellew, senior vice president of Bache Commodities. “We could easily get to $80. $10 is nothing in these markets.“

Analysts said little has changed since last summer when oil prices surged to a record $78.65 for Brent and $78.40 for US crude.

Worries over Iran’s nuclear program, militant attacks in Nigeria and China’s breathtaking economic growth remain key drivers for the market.

One significant change since last summer has been OPEC’s decision to curb supplies by 1.7 million barrels per day, or about six percent.

“The world needs more oil than OPEC seems willing to supply, making it difficult to avoid another surge in oil prices over the coming summer,“ the Centre for Global Energy Studies said in its monthly report.

Consumer nations have called on OPEC, source of more than a third of the world’s oil, to pump more crude to help ease prices and replenish fuel stocks. But oil ministers insist crude supplies are adequate.

“We don’t see any particular reason why it couldn’t hit an all-time high,“ said Paul Horsnell of Barclays Capital, adding that the physical crude markets, where oil is sold for immediate delivery, were already at or near record levels.

Even if prices surge to record territory, the effect on global oil demand will most likely not be as severe as past rallies.

“This time around you need a really big price spike to really damage demand because people’s budgets have adjusted and they have gotten used to it,“ said Jeffrey Currie, analyst at Goldman Sachs investment bank.

Analysts said global oil demand took a hit in 2005 when average crude prices soared more than 35 percent from the year before.

Average prices for this year so far have actually fallen about nine percent from last year’s record average of around $66 a barrel.

“It’s not the price level of oil that matters, but rather the year-over-year change in prices,“ Currie said.

Prices would need to average about $85 a barrel this year to have the same impact on global demand as in 2005, he added.



News Code 105723

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