$100 oil no longer unthinkable
Singapore, September 4:
Oil prices at $100 a barrel are no longer an unthinkable prospect in the aftermath of Hurricane Katrina, and Asian demand is part of the reason, analysts said. Predictions by US investment bank Goldman Sachs in March that oil prices could race upwards to $105 a barrel were widely ridiculed, but the damage unleashed by the US storm has made others now consider it a possibility. Sceptics say oil prices are becoming a bubble just waiting to burst after striking a record high of $70.85 a barrel last week as Katrina hit oil-producing and refining areas in the southern US, and there appears to be relief in the short term. Global oil prices retreated from $70 territory on Friday when the US government led a drive by major industrial powers to release emergency supplies of crude. New York’s main contract, light sweet crude for delivery in October, fell to close at $67.57 a barrel.
Asian Development Bank president Haruhiko Kuroda said in Singapore that “I don’t think $70 will be mai-ntained, but how much and when prices start to decline no one knows. There’s a great uncertainty.” Travel expert John Koldowski, managing director of the Strategic Intelligence Centre at the Pacific Asia Travel Association in Bangkok, said the industry was taking “a long hard look” at what is going on in the oil sector. Analysts had dismissed speculation of $100 oil a few months back but “we’re really now starting to take it seriously,” he said, “It’s a whole new ballgame for us. We’re now talking about prolonged levels of relatively high oil prices.”
Some analysts say that with refineries in the US Gulf Coast hammered by Katrina, all that is needed to push prices up to $100 is a terrorist attack or labour strike in one of the major oil-producting nations. “If we have supply disruptions in Saudi Arabia, Iraq or Venezuela or Nigeria, then it could be even worse,” said Tony Nunan, manager for energy risk management with Mitsubishi Corp’s international petroleum business in Tokyo, “We could easily have a bigger problem if this sort of thing (labour strike) or terrorist attack occurs in a major oil producing country now prices will shoot up to three-digit figures.”
Saudi Arabia, the world’s biggest crude producer which holds the largest proven oil reserves of 261.2 billion barrels or more than a quarter of the global total, has been rocked by a spate of bloody attacks attributed to Al-Qaeda militants in the past two years. Analysts have warned any disruption to Saudi Arabia’s production facilities would send shockwaves as it is the only oil-producing country believed to have the spare capacity to raise output. “It keeps nervousness and prices high,” she said. Oil prices have risen by more than 50 per cent since the end of 2004 when they were trading at around $43 a barrel. The sharp spike in oil prices is attributed mainly to the world’s growing thirst for black gold, with the sizzling Chinese economy and strong US consumer demand singled out as the major demand drivers. A pressing worry now is how much damage has been inflicted on US refineries in the Gulf of Mexico region, which accounts for a quarter of the country’s total oil output.