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Tue, Jan 03, 2006 - Page 12 News List

Global crude oil prices look set to stay high

OUTLOOK While oil prices have fallen back from August highs, rumblings from OPEC recently about a production cut have traders speculating about price levels

AFP , PARIS

World oil prices, after a 40 percent surge last year, may now be set to ease in the face of warmer weather in the US northeast, a trend that could nonetheless be disrupted by OPEC production cuts, analysts said.

Prices for New York's main contract, light sweet crude for February delivery, were hovering close to US$60 on Friday, while in London the price of Brent North Sea crude was around US$57.

Crude futures had hit historic highs in late August following the devastation wrought by Hurricane Katrina on US Gulf Coast energy installations, surging to US$70.85 per barrel in New York and US$68.89 in London.

That marked a 70 percent jump between January and August, but prices have since pulled back owing largely to mild weather across the northern hemisphere in the run-up to winter.

"With the warmer than expected temperatures in the US northeast the demand for heating oil is set to ease," analysts at Sucden brokerage said, adding that milder temperatures could place less pressure on prices.

The northeast region accounts for some 80 percent of total energy demand in the US.

Despite the recent warming trend in the region, crude prices were headed for a 40 percent gain last year over the previous year, Sucden experts predicted.

But clouding prospects for cheaper oil early in the new year is a recent suggestion by Iranian Oil Minister Kazem Vaziri-Hamaneh's of a production cut by OPEC.

Speaking of an upcoming OPEC ministerial meeting on Jan. 31, Kazem said last week he wanted the oil cartel to cut its output ceiling by 1 million barrels per day (bpd).

Iran is the second-biggest crude producer within OPEC, where the official output ceiling currently stands at 28 million bpd.

At its last session on Dec. 12, the cartel decided not to renew an offer of 2 million bpd in emergency additional output.

"People got a false impression from the last OPEC meeting that they were unconcerned about supplies and price, and now they realize that OPEC is potentially laying out the groundwork for a cut in January," said Phil Flynn, senior market analyst at Alaron Trading.

"They won't just let prices fall," he said.

The oil market is now debating what price level OPEC will defend.

"It was US$30, then US$40, then US$50 -- and now it looks more like US$55," he said.

The 40 percent rise over the past 12 months did not, as some had predicted, upset the world economy, kill off growth and send developed countries into an inflationary spiral.

But it did raise the question of whether oil had become permanently more expensive, highlighting the role of energy conservation and efficiency in public policy, the need for more investment in oil production and refining capacity and alternative sources of energy and materials.

Koen Vincent, a senior economist at the OECD, believes last year might go down as a decisive period.

"This is not a blip. This is apparently a permanently higher level of energy prices," he said.

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