NEW YORK, Dec. 9 (Xinhua) -- Although crude oil prices have temporarily given up conquering the 100-dollar threshold some 20 days before the year is drawing to a close, analysts here believe oil prices will finally cross the 100-dollar mark before hovering around the 90-dollar borderline for a while.
This is mainly because the global demand for oil has exceeded the supply and the situation seems hard to reverse, analysts said.
2007 has witnessed a rapid hike in oil prices with the 80-dollar and 90-dollar marks crossed on Sept. 12 and Oct. 23, respectively. Furthermore, crude oil prices touched intraday highs of 98.62 dollars and 99.29 dollars on Nov. 7 and Nov. 21, respectively -- just one minor step away from the psychologically sensitive 100-dollar mark.
DEFICIT BETWEEN DEMAND, SUPPLY -- ROOT CAUSE DRIVING UP OIL PRICES
The U.S. Department of Energy (DOE) said in a report that strong demand and limited supply is the root cause for the high price of oil. The DOE said oil producers are turning out 84.64 million barrels a day, while consumption is 85.7 million barrels a day.
The daily deficit is more than one million barrels and is expected to increase next year, it said.
"The background for the strengthening crude prices throughout 2007 is the growing deficit between global oil demand growth and the non-OPEC supply growth," senior oil market analyst at BNP Paribas Commodity Derivatives Harry Tchilinguirian said.
Shanquan Li, vice president of the Global Equity Group in Oppenheimer Funds, told Xinhua that the growth rate of crude oil exploration and production falls behind the growth rate of market consumption.
"This contributes to the soaring oil prices in recent years," he said.
OTHER FACTORS BOOSTING OIL PRICES
Apart from the fundamentals of supply and demand, many other factors have also played significant roles in boosting oil prices.
Pingfan Hong, senior economic affairs officer of the United Nations Department of Economic and Social Affairs, said the falling dollar, as a result of the two consecutive cuts in interest rates by the U.S. Federal Reserve, dropped to a new low against a basket of world currencies, making oil prices relatively "cheaper" for euro or other currency holders.
Oil futures offer a hedge against a weak dollar, Hong said, adding oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. Still, many other people believe that speculation of oil "adds fuel to the fire."
Addison Armstrong, director of market research at the brokerage Tradition Energy Futures, said speculative money might be tacking on just 5 dollars or 10 dollars to the price of a barrel.
According to a CNN report, Goldman Sachs has over 80 billion dollars in the oil market, while Morgan Stanley has reportedly bought facilities to store oil. Hedge funds, pension funds, commodity-centered mutual funds and insurance companies -- all have gotten in on the act.
Market analysts said other factors contributing to a doubling in oil prices -- from 50 dollars at the beginning of the year to almost 100 dollars in November -- include geopolitical uncertainties, natural disasters, change in oil inventories, especially those in the United States, the inability to immediately produce much more oil in the OPEC countries and a lack of refining capacity.
Of them, political tensions in the Middle East merit special attention.
Oil prices in 10 out of 23 trading days in October were either directly or indirectly affected by the situation in the Middle East, which has more than 60 percent of the verified oil reserves of the world.
HIGH OIL PRICES TO HURT WORLD ECONOMY
Some analysts believe that the soaring oil prices have a knock-on effect on the whole economy -- from a commercial side, the production costs of electricity rise, which raises manufacturing costs. From a consumer side, the price of petrol for cars and other vehicles rises, leading to reduced consumer confidence and spending.
According to a Wall Street Journal report, oil prices will have a severe negative impact on the world economy if they remain high for a relatively longer period.
High oil prices will have a much more serious impact on emerging economies than developed countries, the report said, adding many countries have raised or will raise the retail prices of fuel oil, which will help alleviate the financial burden of these countries and restrain oil consumption. On the other hand, an oil price hike will increase the burden of both businesses and households and the risk of inflation as well.
Tchilinguirian said the impact on the emerging markets of the non-OECD (Organization for Economic Co-operation and Development) nations such as China, India and the Middle East will be strong and energy intensive GDP growth.
While China and other Asian economies rely through exports on the external demand from advanced economies for their GDP growth, a slowdown in these economies should only moderate the GDP growth in emerging markets and their demand for oil.
According to an NPR (National Public Radio) report, the impact on the United States is not as serious as expected. One reason is that the U.S. economy has shifted from a largely manufacturing to a service economy, and therefore its energy needs, as a percentage of GDP, are lower.
Also, cars and airplanes are, overall, significantly more efficient today than they were 35 years ago.
Hong echoed the viewpoint, saying that high oil prices have a limited impact on rich countries.
By taking into account the inflation factor, analysts said oil consumption only represents 3 percent in consumers' entire consumption, accounting for half of the figure in the 1980s.
CRUDE OIL TO REMAIN IN HIGH-PRICE TERRITORY
Although it has failed to cross the 100-dollar threshold in November, experts said oil prices will remain around 90 dollars for some time and will cross the 100-dollar mark sooner or later.
Oil prices will climb higher next year with the yearly average price to reach 76 dollars, said Hong, adding it is almost impossible for global oil prices to drop sharply if the world economy does not move into recession.
Oil prices are expected to remain volatile as long as factors remain such as U.S.-Iran tensions and the financial market turmoil that followed the American housing mortgage market crisis, an industry expert said.
The world's financial and oil markets are becoming increasingly connected and oil prices are no longer driven by the fundamentals of supply and demand alone, said Daniel Yergin, chairman of U.S.-based consultancy Cambridge Energy Research Associates (Cera).
Tensions between Iran and the West over the former's nuclear development have contributed to high global oil prices and affected investment in Iranian oil and gas projects.
Much of the price volatility in the commodity has to do with day sentiment, said senior oil analyst Colney Turner, adding the fact remains however that it is becoming increasingly difficult tolocate additional hydrocarbon reserves.
"Existing reserves across the world are already experiencing declines in output at a time when demand is still strong," he said.
The 100-dollars-per-barrel scenario, while it may not be reached this year, is likely to occur in the not-too-distant future, he said. "This supply-demand issue is not going away and the days of cheap oil are for the history books."
This is mainly because the global demand for oil has exceeded the supply and the situation seems hard to reverse, analysts said.
2007 has witnessed a rapid hike in oil prices with the 80-dollar and 90-dollar marks crossed on Sept. 12 and Oct. 23, respectively. Furthermore, crude oil prices touched intraday highs of 98.62 dollars and 99.29 dollars on Nov. 7 and Nov. 21, respectively -- just one minor step away from the psychologically sensitive 100-dollar mark.
DEFICIT BETWEEN DEMAND, SUPPLY -- ROOT CAUSE DRIVING UP OIL PRICES
The U.S. Department of Energy (DOE) said in a report that strong demand and limited supply is the root cause for the high price of oil. The DOE said oil producers are turning out 84.64 million barrels a day, while consumption is 85.7 million barrels a day.
The daily deficit is more than one million barrels and is expected to increase next year, it said.
"The background for the strengthening crude prices throughout 2007 is the growing deficit between global oil demand growth and the non-OPEC supply growth," senior oil market analyst at BNP Paribas Commodity Derivatives Harry Tchilinguirian said.
Shanquan Li, vice president of the Global Equity Group in Oppenheimer Funds, told Xinhua that the growth rate of crude oil exploration and production falls behind the growth rate of market consumption.
"This contributes to the soaring oil prices in recent years," he said.
OTHER FACTORS BOOSTING OIL PRICES
Apart from the fundamentals of supply and demand, many other factors have also played significant roles in boosting oil prices.
Pingfan Hong, senior economic affairs officer of the United Nations Department of Economic and Social Affairs, said the falling dollar, as a result of the two consecutive cuts in interest rates by the U.S. Federal Reserve, dropped to a new low against a basket of world currencies, making oil prices relatively "cheaper" for euro or other currency holders.
Oil futures offer a hedge against a weak dollar, Hong said, adding oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. Still, many other people believe that speculation of oil "adds fuel to the fire."
Addison Armstrong, director of market research at the brokerage Tradition Energy Futures, said speculative money might be tacking on just 5 dollars or 10 dollars to the price of a barrel.
According to a CNN report, Goldman Sachs has over 80 billion dollars in the oil market, while Morgan Stanley has reportedly bought facilities to store oil. Hedge funds, pension funds, commodity-centered mutual funds and insurance companies -- all have gotten in on the act.
Market analysts said other factors contributing to a doubling in oil prices -- from 50 dollars at the beginning of the year to almost 100 dollars in November -- include geopolitical uncertainties, natural disasters, change in oil inventories, especially those in the United States, the inability to immediately produce much more oil in the OPEC countries and a lack of refining capacity.
Of them, political tensions in the Middle East merit special attention.
Oil prices in 10 out of 23 trading days in October were either directly or indirectly affected by the situation in the Middle East, which has more than 60 percent of the verified oil reserves of the world.
HIGH OIL PRICES TO HURT WORLD ECONOMY
Some analysts believe that the soaring oil prices have a knock-on effect on the whole economy -- from a commercial side, the production costs of electricity rise, which raises manufacturing costs. From a consumer side, the price of petrol for cars and other vehicles rises, leading to reduced consumer confidence and spending.
According to a Wall Street Journal report, oil prices will have a severe negative impact on the world economy if they remain high for a relatively longer period.
High oil prices will have a much more serious impact on emerging economies than developed countries, the report said, adding many countries have raised or will raise the retail prices of fuel oil, which will help alleviate the financial burden of these countries and restrain oil consumption. On the other hand, an oil price hike will increase the burden of both businesses and households and the risk of inflation as well.
Tchilinguirian said the impact on the emerging markets of the non-OECD (Organization for Economic Co-operation and Development) nations such as China, India and the Middle East will be strong and energy intensive GDP growth.
While China and other Asian economies rely through exports on the external demand from advanced economies for their GDP growth, a slowdown in these economies should only moderate the GDP growth in emerging markets and their demand for oil.
According to an NPR (National Public Radio) report, the impact on the United States is not as serious as expected. One reason is that the U.S. economy has shifted from a largely manufacturing to a service economy, and therefore its energy needs, as a percentage of GDP, are lower.
Also, cars and airplanes are, overall, significantly more efficient today than they were 35 years ago.
Hong echoed the viewpoint, saying that high oil prices have a limited impact on rich countries.
By taking into account the inflation factor, analysts said oil consumption only represents 3 percent in consumers' entire consumption, accounting for half of the figure in the 1980s.
CRUDE OIL TO REMAIN IN HIGH-PRICE TERRITORY
Although it has failed to cross the 100-dollar threshold in November, experts said oil prices will remain around 90 dollars for some time and will cross the 100-dollar mark sooner or later.
Oil prices will climb higher next year with the yearly average price to reach 76 dollars, said Hong, adding it is almost impossible for global oil prices to drop sharply if the world economy does not move into recession.
Oil prices are expected to remain volatile as long as factors remain such as U.S.-Iran tensions and the financial market turmoil that followed the American housing mortgage market crisis, an industry expert said.
The world's financial and oil markets are becoming increasingly connected and oil prices are no longer driven by the fundamentals of supply and demand alone, said Daniel Yergin, chairman of U.S.-based consultancy Cambridge Energy Research Associates (Cera).
Tensions between Iran and the West over the former's nuclear development have contributed to high global oil prices and affected investment in Iranian oil and gas projects.
Much of the price volatility in the commodity has to do with day sentiment, said senior oil analyst Colney Turner, adding the fact remains however that it is becoming increasingly difficult tolocate additional hydrocarbon reserves.
"Existing reserves across the world are already experiencing declines in output at a time when demand is still strong," he said.
The 100-dollars-per-barrel scenario, while it may not be reached this year, is likely to occur in the not-too-distant future, he said. "This supply-demand issue is not going away and the days of cheap oil are for the history books."
