Oil prices slide as focus turns to declining demand
By Russell Hotten, Industry Editor
Oil prices slipped again as the dollar continued to strengthen and investors turned their attention to slowing worldwide demand for crude now that concerns over the impact of Hurricane Gustav have begun to fade.
At one point yesterday, the price of a barrel was trading in New York below $105.05 – its lowest level since April and sharply down on the record $147.27 seen on July 11 – before rising above $108.
But there were warnings yesterday that Opec was unlikely to let the oil price slip much further as members of the oil producers’ cartel seek to keep crude above $100 a barrel by cutting production.
Since July, oil’s bull run has been stopped in its tracks amid the economic downturn in America, Europe and Japan.
“That’s been a focus of the market, that the demand side has weakened, particularly in developed countries like the US,” said David Moore, commodity strategist at Commonwealth Bank of Australia. “Had it not been for the hurricane, we would have seen a lower price profile over the last week.”
Robert Nunan of Mitsubishi Bank said: “Everyone’s worried about demand destruction.”
As Gustav swept towards the Gulf of Mexico, companies shut down 13 oil and gas platforms and evacuated personnel, pushing up the crude price. Staff are now returning to the platforms, which escaped serious damage. In 2005, Hurricanes Katrina and Rita caused several weeks of shutdowns.
Should the oil price drift further towards $100 a barrel, analysts believe Opec will seek cuts in production to underpin the price. Opec next meets on September 9 in Vienna.
Tobias Merath, head of commodities research at Credit Suisse, believes that production curbs will keep oil at between £100 and $110 a barrel for the rest of the year.
He told Reuters: “On oil, I think the bulk of the correction is behind us. We think it can test $100 or drop slightly below it in a couple of weeks, but it should not remain below $100 on a sustained basis.”
Mr Merath said weaker demand for crude from the US and OECD countries in recent months had offset higher demand from emerging markets such as China and India, keeping overall consumption flat.
“At the same time, Opec countries are producing quite a bit of oil since March and that is apparently working. But the moment oil drops below $100, they will be quick to cut back production,” he said. “We expect a recovery in oil prices in 2009. We expect prices to hover between $115 and $120 in 2009.”
At the moment Opec remains split on production cuts. Venezuela has led demands for cuts, but Ecuador’s oil minister, Galo Chiriboga, said yesterday that output levels should remain unchanged.