Oil prices of near 100 dollars per barrel caused alarm in consuming countries in 2007 and analysts forecast another tense crude market this year with triple-figure records a real prospect.
Despite a murky outlook for the world economy, crude prices are seen settling at elevated levels, spelling more pain for consumers and a steady flow of petrodollars for the world's oil exporters. From a low point of just below 50 dollars per barrel in January, prices doubled in 2007, hitting 99.29 dollars a barrel on November 21, an all-time record.
Oil forecasting is a notoriously difficult business, but few had expected such a run-up -- besides an analyst at investment bank Goldman Sachs who famously foresaw early in 2005 a "super spike" in prices to 105 dollars.
At the start of 2008, geopolitical risks, with unrest in Pakistan foremost among them, are driving prices back towards the 100-dollar level, with a colder-than-usual winter in the northern hemisphere another danger. "Political unrest around the world has once again become a major factor" for the oil market, said David Johnson, an analyst with Macquarie Securities.
Tension between the United States and Iran, the second-biggest producer in OPEC, had helped push prices higher in the last two years with traders fearful of US military action against the Islamic republic. But Iran was expected to fade as a concern in 2008 after a recent US intelligence assessment said the country had shelved its disputed nuclear weapons programme in 2003.
Oil prices ended the year Monday with a modest dip on the eve of the New Year's Day market holiday amid concerns about instability in Pakistan after last week's assassination of former Pakistani opposition leader Benazir Bhutto. New York's main contract, light sweet crude for February, fell two cents to close at 95.98 dollars, while in London, Brent North Sea crude for February delivery slipped three cents to 93.85 dollars.
Goldman Sachs, one of the most active banks in the energy market, raised its price forecasts for 2008 by 10 dollars on December 12, with average benchmark US prices now seen at 95 dollars. The price could reach 105 dollars by the end of 2008, it said.
The London-based Centre for Global Energy Studies sees an average of about 90 dollars in the first half of the year, with a spike to 100 dollars a possibility. "There are conditions in which we would see well over 100 dollars per barrel, such as a cool winter, tightness of OPEC supplies, or non-OPEC supply not growing as much as predicted," said CGES analyst Leo Drollas.
Analysts at investment bank Merrill Lynch pointed to upside risks to prices in early 2008 in research published on December 13 and they predicted average oil prices this year of 82 dollars. Some analysts said softening global economic growth, particularly in the United States, could help temper price gains, however.
"I do have some concerns about demand," said a Washington-based analyst for oil consultancy PFC Energy, David Kirsch "The global economy is weak ... and that's going to be the worry that potentially keeps you from 100 dollars," he said. The United States has been battling crises on two fronts. In the housing sector, prices are falling sharply and an increasing number of people are defaulting on home loans.
The 13-member Organisation of the Petroleum Exporting Countries is likely to remain under pressure to bring down prices this year, but the cartel shrugged off calls for more crude at a December meeting in Abu Dhabi. It is held responsible by many for the surge in prices in 2007 by restricting supplies to reduce stock levels in industrialised countries. "OPEC has not been pumping enough. It's as simple as that," said Drollas.
Kirsch at PFC said 2007 was the year of "the reemergence of OPEC" after many had said the influence of the organisation, which pumps 40 percent of world oil, had waned. He also said the "financialisation of oil," or the use of oil as an investment product for speculators and even pension funds, was a key theme of 2007 that was set to continue in 2008.
"It started late last year. We're now seeing different types of investors," he said. "Before it was primarily hedge funds, now we're seeing pension funds, which are very conservative investors, taking long-term positions in oil as part of a larger portfolio strategy." OPEC members have railed against the role of "speculative" money, which they blame for volatility and high prices.
Despite a murky outlook for the world economy, crude prices are seen settling at elevated levels, spelling more pain for consumers and a steady flow of petrodollars for the world's oil exporters. From a low point of just below 50 dollars per barrel in January, prices doubled in 2007, hitting 99.29 dollars a barrel on November 21, an all-time record.
Oil forecasting is a notoriously difficult business, but few had expected such a run-up -- besides an analyst at investment bank Goldman Sachs who famously foresaw early in 2005 a "super spike" in prices to 105 dollars.
At the start of 2008, geopolitical risks, with unrest in Pakistan foremost among them, are driving prices back towards the 100-dollar level, with a colder-than-usual winter in the northern hemisphere another danger. "Political unrest around the world has once again become a major factor" for the oil market, said David Johnson, an analyst with Macquarie Securities.
Tension between the United States and Iran, the second-biggest producer in OPEC, had helped push prices higher in the last two years with traders fearful of US military action against the Islamic republic. But Iran was expected to fade as a concern in 2008 after a recent US intelligence assessment said the country had shelved its disputed nuclear weapons programme in 2003.
Oil prices ended the year Monday with a modest dip on the eve of the New Year's Day market holiday amid concerns about instability in Pakistan after last week's assassination of former Pakistani opposition leader Benazir Bhutto. New York's main contract, light sweet crude for February, fell two cents to close at 95.98 dollars, while in London, Brent North Sea crude for February delivery slipped three cents to 93.85 dollars.
Goldman Sachs, one of the most active banks in the energy market, raised its price forecasts for 2008 by 10 dollars on December 12, with average benchmark US prices now seen at 95 dollars. The price could reach 105 dollars by the end of 2008, it said.
The London-based Centre for Global Energy Studies sees an average of about 90 dollars in the first half of the year, with a spike to 100 dollars a possibility. "There are conditions in which we would see well over 100 dollars per barrel, such as a cool winter, tightness of OPEC supplies, or non-OPEC supply not growing as much as predicted," said CGES analyst Leo Drollas.
Analysts at investment bank Merrill Lynch pointed to upside risks to prices in early 2008 in research published on December 13 and they predicted average oil prices this year of 82 dollars. Some analysts said softening global economic growth, particularly in the United States, could help temper price gains, however.
"I do have some concerns about demand," said a Washington-based analyst for oil consultancy PFC Energy, David Kirsch "The global economy is weak ... and that's going to be the worry that potentially keeps you from 100 dollars," he said. The United States has been battling crises on two fronts. In the housing sector, prices are falling sharply and an increasing number of people are defaulting on home loans.
The 13-member Organisation of the Petroleum Exporting Countries is likely to remain under pressure to bring down prices this year, but the cartel shrugged off calls for more crude at a December meeting in Abu Dhabi. It is held responsible by many for the surge in prices in 2007 by restricting supplies to reduce stock levels in industrialised countries. "OPEC has not been pumping enough. It's as simple as that," said Drollas.
Kirsch at PFC said 2007 was the year of "the reemergence of OPEC" after many had said the influence of the organisation, which pumps 40 percent of world oil, had waned. He also said the "financialisation of oil," or the use of oil as an investment product for speculators and even pension funds, was a key theme of 2007 that was set to continue in 2008.
"It started late last year. We're now seeing different types of investors," he said. "Before it was primarily hedge funds, now we're seeing pension funds, which are very conservative investors, taking long-term positions in oil as part of a larger portfolio strategy." OPEC members have railed against the role of "speculative" money, which they blame for volatility and high prices.
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