It seems that the party is continuing in the oil market in November as, on average, it is the forth consecutive month for prices to maintain their upward movement. The price of the Opec basket of crudes (OBC) continued for the whole month over $80 (Dh293) per barrel to the extent that some analysts are suggesting a new range to emerge and that this level may become a floor.
The average for the month so far for the OBC is $82.78 per barrel and the maximum level of $85.81 per barrel was reached on November 11, the highest level since two years.
Both Opec and IEA have recently revised average 2010 demand upward by 190,000 and 200,000 barrels per day (bpd) respectively due to higher forecasts of economic growth and stronger than expected third quarter consumption which may spill into the rest of the year and even into 2011 forecast.
Therefore, the call on Opec oil in 2010 is now 28.8 and 29.6 million barrels per day according to Opec and IEA respectively.
By this time of the year the two estimates should be closer and it is difficult to explain the difference except by Opec conservative view.
Oil stocks, though still higher than the last five years average, have fallen recently in the US and Japan by over 22 million barrels but rose in Europe by 8.5 million barrels.
In addition to the fundamental changes above the market was driven by a better economic outlook especially in the US where growth in 2010 is expected at 2.7 per cent. Even the forecast in Japan is revised upward to 2.9 per cent. However, Europe is still lagging at 1.4 per cent and concern over financial stability in the European Union is real especially after Ireland officially sought to obtain billions of dollars in financial assistance from the EU and IMF.
This has caused some fall in oil prices in the second half of November because of rising dollar over the Euro. Generally speaking the dollar is still weak which supported oil prices in the wake of the second wave of stimulus packages in the US.
While China is trying to slow down its economy, it is too early to say how much this will affect the oil market.
But the tension between the two Koreas may put some doubt about the economic prospect in the whole region and impact demand negatively.
The market may have received indirect support by the IEA recent claim that the world may have entered peak oil production since 2006. This is a sudden announcement that will be the subject of a lot of discussions in the near future especially with such an early date for peak oil production.
Impact of stimulus
The stimulus package in the US of $600 billion recently announced by the Federal Reserve is likely to drive investors towards commodities as the dollar is expected to decline which may mean higher oil prices are forthcoming if the stimulus package further solidifies the improvement in US economic outlook and thus oil demand.
A few months ago Saudi oil Minister Ali Al Nuaimi considered oil prices which were close to $70 per barrel "perfect", only to state recently that current prices of over $80 per barrel are "in a very comfortable zone".
Shokri Ghanim the Libyan oil chief says that oil "at $100 per barrel will be comfortable for oil producers because of the increase in food prices and the weak dollar". Even Abdullah Al Badri, Opec Secretary General, said that prices of $100 a barrel would not necessarily derail the global recovery, a view shared by a similar comment from the IMF.
Lawrence Eagles, the head of commodities in JP Morgan-Chase said, "We will probably move past $90 by the end of the year, and then $100."
The Energy Information Administration is saying in this month's report that WTI crude "will average $85.17 a barrel next year, up from last month's forecast of $83" and "prices in 2010 will average $78.80, 83 cents higher than October's estimate of $77.97".
Goldman Sachs reported their medium term forecast for oil prices in 2012 would be "substantially higher" while BNP Paribas raised 2011 oil price forecasts for the average US crude oil price to $88 a barrel and left its 2010 forecast unchanged.
The next Opec conference in Quito, Ecuador is not expected to change production level but may discuss the question of compliance with current agreements.
- The writer is the former head of the Energy Studies Department in the Opec Secretariat in Vienna.