‘Tipping point’ round the corner: analysts

‘Tipping point’ round the corner: analysts
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First Published: Tue, Jan 01 2008. 11 30 PM IST
Updated: Tue, Jan 01 2008. 11 30 PM IST
Houston: Oil prices ended 2007 just a few dollars short of three digits per barrel, but that milestone looms with undaunted global demand.
Light, sweet crude closed out 2007 at $95.98 (Rs3,782) a barrel—a 57% surge over the year-end 2006 close of $61.05.
Tom Kloza, chief oil analyst at the Oil Price Information Service, said oil watchers likely were surprised the US and world economies could survive oil prices at $75 and higher per barrel and retail gasoline prices often north of $3 a gallon. But the so-called “tipping point”, which will pierce demand is out there, Kloza said. It may be $100 a barrel for crude and somewhere above $3.25 for a gallon of regular unleaded gasoline.
“We'll probably give that tipping point a good test this spring, and that will spark demand destruction and perhaps a more temperate and sober fuel price story in the second half of 2008,” Kloza added.
Oil prices in 2007 mirrored the 2006 movement until the latter half of the year, when they blew past 2006’s record close of $77.03. Throughout the fourth quarter, prices surpassed $80 and $90.
Demand in China, India and West Asia grew unabated amid some production shortfalls and tightening access to resources, largely for global oil firms not controlled wholly or partly by governments.
All the while, US demand for crude remained strong while its inventories shrank. According to Barclays Capital, America’s crude inventories fell by more than 60 million barrels from June to December.
John Olson, chief investment officer with Sanders Morris Harris Group Inc. in Houston, noted that since 2002, oil prices have risen from $25 or $30 a barrel, to current levels. Global demand also rose to 85 million barrels a day, from 79 million.
“You would expect with the commodity price almost quadrupling that demand would be reduced due to conservation in particular, and more efficiency,” Olson said. “There really has been precious little demand response in the face of this enormous upsurge in crude oil prices.”
A November boost of 500,000 barrels per day from the Organization of the Petroleum Exporting Countries (Opec) did little to temper the push. But speculation that the cartel would approve another increase in early December brought prices down by about $10 a barrel from the highest close of 2007—$98.18 on 23 November. Opec didn't approve another boost and scheduled a 1 February meeting to consider further action.
“They delayed an increase because they’re afraid of a US recession,” said James Williams, head of energy consulting firm WTRG Economics. “There is no example of a US recession without a collapse in oil prices in the last 30 years. If there is a US recession, that is the tipping point. High prices carry with them the solution to high prices.”
©2008/The New York Times
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First Published: Tue, Jan 01 2008. 11 30 PM IST
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