Oil price rebound attributed market operations

VIENNA, July 6 (Xinhua) — The optimistic outlook of the world economic recovery is a major factor driving the rebound of international oil prices in the first half of this year.

Experts say, however, that the price boost may be attributed more to current market operations than actual growth in demand.

After dramatic ups and downs last year, oil prices saw a quick rebound from January to June of this year, with prices of the Organization of Petroleum Exporting Countries (OPEC) rising to 67.97 U.S. dollars per barrel in the last week of June. That was almost double the price of less than 35 dollars at the end of last year.

Notably, OPEC’s monthly oil prices from May 9 to June 9 surged 11.38 dollars, the biggest monthly rise in 10 years.

DEMAND STILL EXPECTED TO DECLINE

Positive signs were seen in some economic data in the first half of this year in industrialized countries like the United States and Germany.

However, it is indisputable that the world economy is still fragile, that world trade remains weak and energy consumption continues to decline.

OPEC again lowered its expectations for world crude oil demand for 2009 by 1.89 percent in its monthly report in June. The report said demand in Western European countries would drop by 2.72 percent, while demand in North America would decline by 3.72 percent.

At the end of June, the International Energy Agency also lowered its mid-term expectations for crude oil demand, which is predicted to be 87.90 million barrels per day in 2013, 3.3 million barrels, or 3.6 percent, less than the forecast made in December.

PRICE SURGE ATTRIBUTED MORE TO MARKET OPERATIONS

Joel Fingerman, president of Chicago-based energy consulting firm Oil Analytics, believed that the continuing rise in oil prices was not due to changes in the supply-demand relationship, but to a larger extent because of responses to financial market operations.

“More and more investors gave up U.S. dollars due to the Federal Reserve’s continuing interest rate cuts, the weak dollar and the volatile financial market, and turn to dollar-denominated staple commodity futures such as oil and grain so as to avoid risk,” Fingerman said.

“The inflation expectation caused by the low interest environment also boosted the oil prices higher,” he said.

Fingerman noted that when oil prices rose to their half-year peak, the dollar-euro exchange rate also dropped to its half-year bottom.

source: xinhuanet