Oil prices predicted to subside by economists

24-Aug-05

Light, sweet crude for October on the New York Mercantile Exchange stood at US$65.63 a barrel and October Brent stood at US$64.67 a barrel on London's International Petroleum Exchange. The past fortnight has witnessed a record price rise, with prices surging past US$67. As supply concerns mount and demand fails to wane, many feel that the market will see oil prices peak and even touch US$100. However, leading economists have predicted that prices will continue to hover around US$60. Though the estimates vary, projections of global oil prices are in the range of US$55 - US$60 per barrel for the rest of 2005 and US$50 to US$60 in 2006. Through 2004, oil demand from China accounted for 36% of the world's total demand and demand from USA accounted for 20% of the world's total demand. The Chinese authorities have, from time to time been taking steps to cool an overheated economy and interest rates are to be cut in the USA. An expected slow down in the US economy, as regular increases in key interest rates by the Federal Reserve would slightly apply the brakes on US business expansion, reducing eventually reduce demand for oil. We seem to be closing in to the peak of oil prices in the cycle. Worldwide demand would also likely decrease marginally in line with an expected decrease in gross domestic product (GDP) worldwide to 4.5% at the end of the year and 4.1% at the end of 2006, from 5.1% recorded at the end of last year.