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Oil prices may rise on supply shocks, warn analysts

Oil prices may rise on supply shocks, warn analysts
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First Published: Sun, Aug 10 2008. 01 42 PM IST
Updated: Sun, Aug 10 2008. 01 42 PM IST
By Roland Jackson / AFP
London: World oil prices, which have plunged from recent record heights, could spike higher again should the market be rocked by new supply-side shocks, according to industry experts.
Prices sank lower last week on mounting concern that slower economic growth in the United States would translate into lower global energy demand.
The price of crude oil on international markets has shed about 20% in value since hitting record highs above $147 per barrel in July.
Standard Chartered analyst Helen Henton said investors could send oil surging higher once more amid volatile trading conditions — and ongoing supply threats such as the Iranian nuclear energy crisis.
“Overall, the picture is one of a still tight market with growing demand, vulnerable to supply risks,” Henton said.
She added: “Upside risks remain. We expect prices to range in a $110-130 band for the next 18 months, while not ruling out investor-driven price spikes.”
The road ahead
Meanwhile, a bullish report has predicted that oil could strike $200 per barrel within ten years owing to tightening supplies and a lack of investment in new production.
“Prices could surge past $200 because of an impending global supply crunch,” the Chatham House foreign affairs think tank said.
“The world will experience a serious oil supply crunch within five to ten years unless there is a collapse in oil demand,” Chatham House said in a gloomy report entitled The Coming Oil Supply Crunch.
However, other oil industry experts remain unconvinced about a return to record-breaking price levels.
Julian Jessop, at Capital Economics, believes the world will now face a sustained period of lower prices for oil and other commodities amid slowing economic growth in Western economies.
“We think that the recent sharp falls in commodity prices are more than just a temporary dip in an upward trend,” Jessop said.
“Commodity prices are now much higher and affordability more stretched than they were a year ago, implying greater scope for further falls.”
He added: “The global demand environment is clearly much weaker. The OECD (Organisation for Economic Cooperation and Development) economies grew by just over three percent in 2006, but many are now flirting with outright recession.”
But Henton countered that strong demand stemmed from countries that were not within the region of the OECD.
Jessop said that “ever-accelerating demand for commodities from emerging economies” could not be taken for granted.
He warned: “The trend among Asian countries towards cutting fuel subsidies will increase the sensitivity of demand to higher global oil prices by ensuring that final consumers bear more of the cost.”
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First Published: Sun, Aug 10 2008. 01 42 PM IST