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World: Oil Prices Fall Slightly, But Experts Worry It's Short-Lived

  • Kathleen Moore

http://gdb.rferl.org/2F137C08-DF65-4328-A677-EE2B1B50585E_w203.jpg --> http://gdb.rferl.org/2F137C08-DF65-4328-A677-EE2B1B50585E_mw800_mh600.jpg Some analysts fear a cold winter could send demand higher (file photo) World oil prices have fallen slightly from record highs after the president of oil-rich Venezuela won a referendum confirming he will stay in office. But as RFE/RL reports, experts say the fall could be short-lived -- and that $50 a barrel is a possibility.

Prague, 17 August 2004 (RFE/RL) -- World oil prices have been rising steadily all year, to the dismay of consumers and economists alike.

U.S. light crude oil reached nearly $47 (46.91) a barrel yesterday. That's the highest in 21 years of trading at the New York Mercantile Exchange.

They've since dipped slightly (to $45.75 a barrel), after Venezuelan President Hugo Chavez survived a recall vote that could have affected oil exports in the world's fifth-largest producer.

But some experts say that the fall could be short-lived.

That's because there are so many other factors causing high oil prices.

Chief among them are Iraqi instability, the ongoing financial crisis at Russian oil giant Yukos, and unrest in African oil producer Nigeria. There's also the fear that further terrorist attacks in Saudi Arabia could disrupt oil supplies.
"You have the U.S. elections coming up in November and the terrorists have vowed to make some spectacular hits in the Western world. Who knows? If these guys get the right targets -- like a shipping lane or a refinery or a major pipeline -- the push towards $50 isn't difficult"


At the same time, there's rising global demand for oil, thanks in part to economic growth in countries like the United States and China.

The International Energy Agency last week said world oil demand is now over 82 million barrels a day -- more than previously thought.

Ng Weng Hoong is editor at energyasia.com, a Singapore-based news and information site on the oil and gas industry.

"We're seeing a fundamental push in consumption rise that's giving the market some foundation. But on the supply side now what we have is the added pressure of fear. I don't think it's irrational. Countries and companies are [looking] at what's happening out there, they see this never-ending war [in Iraq] that's going from bad to worse, [and] now you get stockpiling [of oil] taking place across the world," Ng says.

To be sure, if you take inflation into account, oil prices are not as high as they were in the early 1980s following Iran's revolution.

Still, economists worry that prices are high enough to cause damage to some of the world's biggest economies -- like the United States and Germany.

At times like these, pressure usually builds on the world's big oil-producing countries to react by increasing oil production.

But, the problem is that OPEC countries are already producing almost at full capacity. Muhammad Ali Zainy is an analyst at London's Center for Global Energy Studies.

"This is all happening in the face of a very tight market caused by almost no spare capacity at OPEC, so there is almost no cushion to counteract the disruption of supplies in the case of such an event taking place," Zainy says.

He says this means there is little that can be done to push prices lower.

"The only thing that might be done is that because of higher prices these higher prices might put a brake on demand and then demand will have to go down and then you would have a balance in the market," Zainy says.

So what happens next?

Zainy says a solution to Yukos' troubles or the unrest in Nigeria could prompt prices to fall, just as they did after the Venezuelan referendum.

But there are plenty of unpredictable factors that could send prices higher still.

One of the biggest is the weather. An unusually cold winter in the Northern hemisphere could send demand higher. Iraq and terrorism are other factors.

In any case, Ng of energyasia.com says the dip following the Venezuelan vote is likely to be short-lived.

"You have the U.S. elections coming up in November and the terrorists have vowed to make some spectacular hits in the Western world. Who knows? If these guys get the right targets -- like a shipping lane or a refinery or a major pipeline -- the push towards $50 isn't difficult. All you need is a consistent pattern of 50 cents to a dollar increases, and you would be there in a matter of a week. That's what we're looking at," Ng says.
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