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| Monday, 2 August 2004 |
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Soaring oil prices - a structural phenomenon? VIENNA, Sunday (AFP) The oil price spike, which shot last week to the historic heights of October 1990, is a structural phenomenon set to have a long-lasting impact on the world economy, analysts say. "The current crisis is due to the combination of limited resources and increasing demand, driven mostly by China and India, which has not been dented by a drop in consumption in 'oil-intensive' economies like the United States, the European Union and Japan," said Francis Perrin, from the French publication Petrole et gaz arabes. The steep rise in the price of crude oil, pushed to the hilt notably by the threat of disruptions in supply by Russian oil giant Yukos, which produces 1.7 million barrels per day (bpd), "does not mean we are seeing another oil crisis (like the ones in 1973 and 1979) after which the market will correct itself," he added. Rather, Perrin said, "this is a structural phenomenon that forms part of the increase in price in primary resources that will last at least until the end of the decade." New York's benchmark contract, light sweet crude for delivery in September, spiked Friday to an unprecedented 43.85 dollars a barrel before settling at a record high finish of 43.80 dollars. London's Brent North Sea crude for September rose 77 cents to 40.02 dollars per barrel, the first break above 40 dollars since October 1990 after the Iraqi invasion of Kuwait. Adjusted for inflation, world oil prices remain far below the levels reached in the 1970s oil shock, but have shot up dramatically from the beginning of 2002, when the price of a barrel of oil hovered around 18 dollars.The rise to above the 40 dollar level has been fueled by geopolitical factors ranging from the September 11, 2001 attacks in the United States to the resumption of oil exports by Iraq which reached 2.1 million bpd in the first half of this year. Added to the list are the troubles in Venezuela - which is expected to produce 2.99 mbd from August - and Nigeria and the worsening of the conflict in the Middle East. According to oil exports, the so-called fear factor adds five to eight dollars to the price per barrel. But the spectre of enduring high prices can also partly be attributed to the fact that the Organisation of Petroleum Exporting Countries (OPEC) has difficulty in satisfying global demand, which is expected to increase by 3.2 percent this year to 81.4 mbd, and further to 83.2 mbd in 2005, according to the estimates of the International Energy Agency (IAE). OPEC, which represents around 35 percent of the world's oil supply and which was expected to raise its official production ceiling to 26 mbd on August 1, said last week that it will increase its surplus production capacity by a million barrels per day "in the short term". "We need to be ready to adjust supply to demand," said the president of the cartel, Indonesia's Purnomo Yusgiantoro, at a news conference at its headquarters in Vienna. But analysts are sceptical about such statements. Frederic Lasserre, of the French bank Societe Generale, said: "OPEC is trying to convince the market that, even if it is flirting with a production of 27.5 mbd, Iraq excluded, it still has resources in reserve." |
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