Emerging markets 'to keep oil prices high'
Wednesday, 14 May 2008
Print
Email
The price of oil is unlikely to fall significantly from near-record highs and could rise further still as demand from Asia and the Middle East outstrips falling demand from the faltering US and European economies, the International Energy Agency said.
The Paris watchdog's findings, published yesterday in its monthly oil market report, underline the shifting balance of power between the emerging economies in the East and the traditional powers in North America and Europe.
Year on year the United States, the world's biggest oil consumer, is using 400,000 barrels less per day, equivalent to 2 per cent of its average daily consumption of 20m barrels. A slowdown of that magnitude would in the past have led to a sharp drop in the oil price. This is clearly no longer the case – oil hit a fresh high of more than $126 on Monday.
Eduardo Lopez, an IEA analyst, said the role of America as oil price arbiter – it consumes one in every four barrels of the world's oil – has been greatly diminished. "Demand is coming from emerging markets. As long as the US doesn't collapse, it doesn't really matter if the mature economies are slowing," said Mr Lopez.
Indeed, the IEA is predicting that despite the US slowdown demand will rise by 1m barrels a day, or about 1.2 per cent over the next year. This is due primarily to growth in China, which saw demand grow by 11 per cent, and the economies of the Middle East.
Production, meanwhile, is struggling to keep pace. The IEA highlighted the difficulties of non-Opec producers, such as Royal Dutch Shell and BP, to replace their rapidly depleting reserves as one of the primary factors feeding that perception that the supply-demand dynamic will remain tight. Recent production cuts in Nigeria and the North Sea haven't helped. Opec, led by Saudi Arabia, has some scope for production increases, but has expressed no appetite to do so.
The IEA said: "If traders feel Opec is signalling it is comfortable with $100 [per barrel oil], then fundamentals are appraised from that new base. Opec's silence as we neared $120 raisedperceptions of an even higher floor."
Mr Lopez added: "Opec loves to argue that it's all speculation but we shouldn't overplay that. It's becoming a lame excuse. Speculation is a factor, but it accompanies a trend, it's not setting the trend. This is down to fundamentals."
