A NEW surge in oil prices could derail world economic recovery, US Energy Secretary Steven Chu warned at the weekend after prices hit a six-month high of 62,26.
“What the world wants — oil- producing countries and oil consuming countries — is stable oil prices,” Chu said at the a press conference in Rome on Saturday, where he was attending a meeting of energy ministers of the Group of Eight (G-8) nations. “Another spike in oil would have consequences in terms of world recovery, but if the economy doesn’t recover oil demand will remain down.”
Chu noted that US oil and fuel prices “have gone up a bit” in recent weeks, with crude rising 10 a barrel and fuel prices jumping 23c a gallon since the beginning of the month. “Another price spike would be bad for the economy and they (Opec members) know it.”
Energy leaders yesterday debated what level oil prices would spur investment in the sector without harming a wider global economic recovery as top producer Saudi Arabia forecast prices moving towards 75 a barrel. Oil officials from Saudi Arabia and Libya said oil prices would continue rising to eventually hit 75 a barrel, though that might take time.
“It will be reached, but not very soon, but the market is improving,” Libya’s Shokri Ghanem said on the eve of the two-day meeting. Saudi Arabian Oil Minister Ali al-Naimi said oil prices would “eventually” hit 75 — the level producers say is needed to encourage investment in new production over the long term — but cited weak demand as a problem. “Demand will pick up eventually when the economy recovers,” he said.
Oil prices have recovered from a five-year low below 33 in December, having plunged from record highs above 147 last July.
Oil climbed this year as investors followed equity markets higher on speculation that the worst of the US recession is over.
Oil slipped below 61 on Friday amid persisting worries over the fiscal outlook of the US, the world’s top energy consumer, but losses were limited by data showing a big rise in Chinese oil demand last month. Also keeping oil prices buoyant were a weak dollar, which on Friday fell to a four-and-a-half- month low, and renewed fighting between rebels in oil-rich Nigeria, Africa’s largest oil producer.
“We are getting a big rush out of the dollar and a spike in treasury yields, which should result in a big inflow into commodities,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St Louis. “We are just starting to see the move into commodities gather momentum.”
Meanwhile, Nigeria’s oil production has fallen to less than half its capacity as fighting escalates against militants in the Niger River Delta. Nigeria’s Petroleum Minister Odein Ajumogobia said yesterday his country now pumped about 1,6- million barrels a day, against capacity of 3,2-million.
However, despite the recent gains, some traders doubt that prices will continue to climb in the short term.
“With nearby crude oil prices now having advanced nearly 30 per barrel from their lows, we think the market has largely priced in a
V-shaped recovery, leaving it overvalued and vulnerable to disappointment,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York.
Another analyst warned that oil price levels now were not in line with underlying weak global economic conditions.
“If you have a look at the fundamentals in the market at the moment, the inventories in the US are still at 19-year highs, and there’s no real indication that demand has re-entered the market yet,” said Ben Westmore, an economist at the National Australia Bank. Reuters, Bloomberg and Sapa-AP-AFP