Thursday, March 17, 2005

Oil prices ignoring supply/demand ?

on NYTimes

The acting secretary general of the Organization of the Petroleum Exporting countries, Adnan Shihab-Eldin of Kuwait, told reporters early in the month that $80-a-barrel oil was not out of the question if there were a sudden interruption in production. And an analysis from the Energy Department released last week said crude oil prices were expected to average around $50 a barrel this year.

Fadel Gheit of Oppenheimer & Company in New York compared behavior in the oil market to the run-up in Nasdaq stocks that ended five years ago. "The higher oil prices go, the closer we get to bursting the bubble," Mr. Gheit said. "At some point the circuit breaker will kick in and the price will come down. I would not be surprised to see oil come back to $30."

"We are in the mode where the fundamentals of supply and demand really don't drive the price," Lee R. Raymond, the chairman and chief executive of Exxon Mobil, the world's largest energy company, said at a meeting last week with analysts in New York. "Oil is a commodity, and history tells us that commodity prices never stay high forever."

For every voice calling for moderation in the market, there are others putting forth reasons for oil prices to climb. The International Energy Agency said on Friday that it had increased its estimate for growth in worldwide demand for oil this year to 1.81 million barrels a day, a 2.2 percent rise from last year - putting global consumption of oil at 84.3 million barrels a day. Much of the output to meet that demand will have to come from Saudi Arabia, the largest producer, and other OPEC countries.

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