Business | Oil & Gas
Gulf crude prices to head south as demand slips
Surplus oil at a time when the world appears headed for a rat $55-$70 per barrel, energy experts told Gulf News.
- By Himendra Mohan Kumar, Staff Reporter
- Published: 23:56 October 22, 2008
Abu Dhabi: Surplus oil at a time when the world appears headed for a rat $55-$70 per barrel, energy experts told Gulf News.
"The risk premiumecession is likely to keep global oil prices around $55-$80 per barrel in the near term, with prices for Gulf oil seen has deflated and the amount of surplus oil the world has today is well above two million barrels per day, which can be used in a crisis," said Dalton Garis, associate professor of Econ-omics at the Petroleum Institute in Abu Dhabi.
Main benchmarks
Yesterday, on the New York Mercantile Exchange, crude oil futures for Dec-ember delivery dropped below $70 a barrel in early trade, while in London, crude oil futures for November were at $66.28.
Producers from the Organisation of Petroleum Exporting Countries (Opec) will cut oil supplies when they meet this week in Vienna and "the reduction must be significant," media reports quoted the group's president, Chakib Khelil, as saying last week.
Garis said he expects Opec to announce a half-a-million barrel per day cut in output when the group meets tomorrow to prevent oil prices from sliding further.
However, Kate Dourian, Middle East editor of energy information provider Platts said: "I think it's going to be very difficult for Opec to justify a cut in production in order to defend a higher price when the global economy is on the verge of a recession."
The experts, however, added that the possibility of an Opec production cut, winter oil demand in the northern hemisphere and buying interest from emerging economies - China and India - to build up their strategic oil reserves given the current inexpensive oil prices, may positively impact the price of crude oil, but this impact won't sustain for long.
Experts said as of now, speculators are out of the oil market and what are seen today are the true fundamentals of supply and demand. The banks, they added, have reduced their exposure to commodities as a result of the credit crunch.
"The outlook on oil has to be bearish, based on the current state of the global economy," said Dourian.
Russia-Opec link in focus
The resurrection of a decade-old idea of inventories comes as another sign of Russia's growing ties with Opec, which has unnerved global consumers already worried by talks between Russia, Iran and Qatar to create an Opec-style gas group.
"The Ministry of Energy is considering creating an oil production reserve, which would allow it to work more efficiently with prices on the market," said Russian Deputy Prime Minister Igor Sechin, who oversees the energy sector. Asked how big the reserve should be, Sechin told reporters: "Enough to reach efficient pricing parameters."
Russia is the biggest oil producer outside Opec and the world's second-largest exporter after Saudi Arabia.
Opec Secretary General Abdullah Al Badri, who arrived in Moscow on Tuesday, said he would meet Russian President Dmitry Medvedev to discuss the exchange of market data and would not raise the issue of oil production cuts. Badri said he liked the reserve idea. "Russian reserves can help global oil shortages. This idea is good. We will have to discuss it."
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