Crude oil for November delivery in the United States, the world’s largest oil consumer, shot up yesterday to cross $88 a barrel on the New York Mercantile Exchange amid concerns that Turkey will launch a full-scale attack on Kurdish separatists in Iraq along the Turkey-Iraq border that could potentially hamper crude shipments in an already tight global market.
At 1620 GMT, US crude was up $1.71 at $87.84 a barrel after rising as high as $88.20. London Brent was up $1.60 at $84.35 a barrel.
With world demand unabated despite surging prices and the US dollar hitting new lows against major currencies, oil market analysts aren’t ruling out prices touching the psychological $100 per barrel this winter when demand for heating oil rises, primarily in the US.
“It’s not beyond the realms of possibility. The prices now are a couple of dollars short of $90 per barrel, so they really don’t have a long way to go to hit the magical $100 per barrel,” said Kate Dourian, energy information provider Platts Middle East editor.
When asked about the medium-term outlook, Dourian said: “There’s no reason why the prices should come down very significantly. While oil producers are now saying the record high oil prices are mitigating the impact of a weaker dollar, it is unlikely that they would want to see oil prices rise to a level that will cut demand for fuel.
“The crude market at the moment is balanced but it’s tight on oil products. Geopolitical tensions, insufficient global refining capacity and the positions taken by non-commercial investors are driving the oil market northward,” Dourian added.
The Organisation of Petroleum Exporting Countries (Opec) on Sunday raised its forecast for demand for its oil this winter and said it appeared more likely that the US would avoid a sharp econ-omic slowdown. “It now appears more likely that the US economy could weather the financial crisis without a sharp downturn in economic activity,” said a report by Opec economists.
“The prospect of a tight crude balance until at least the end of the year is a factor supportive of current high oil prices,” said the International Energy Agency, in its oil market report for October 2007.
Is the price justified?
Oil market experts said the prevailing high oil prices aren’t justified. “Oil prices, at the moment don’t quite reflect the fundamentals,” said one expert.
Iran’s ambassador to the UAE, Dr. Hamid Reza Asefi, told Gulf News that in the near term, chances of oil reaching $100 per barrel would depend upon “elements such as the shortage of oil, supply of oil, Opec ministers’ attitude and environment in the region.”
Economists said the high oil prices will further boost windfall gains for oil producing nations such as the UAE but they will be negative for countries not producing oil.
Prices: Increasing gasoline costs could fuel inflation
Any attempt to increase gasoline prices could worsen inflation in the UAE, analysts say.
Mohammad Amerah, an Abu Dhabi-based economist, said domestic oil retailers may now try to get state-set gasoline prices increased in view of the mismatch between prices in the UAE and those in the international market. “The government will have the final say on this issue. I am sure the government will take into consideration all socio-economic implications before allowing any increase in gasoline prices, if at all,” said Amerah, while cautioning that any increase in gasoline prices in the near future could further stoke inflation in the UAE.
“If the price of gasoline increases, this will get reflected through higher prices of consumer goods as the producers would shift the increase in oil prices to consumers,” he said.
“I am not sure whether the government will allow an increase in domestic prices of gasoline despite some retailers complaining they are losing money due to the price cap,” Platts’ Kate Dourian said.