Oil prices retreat from three-month high

05 August 2010

Market balances rising demand with economic fears

Oil prices reached three-month highs during the week ended 5 August, topping  $82 a barrel in the US before falling on a larger than expected increase in gasoline inventories in the world’s biggest energy consumer.

The US’ benchmark September West Texas Intermediate (WTI) contract was trading at $82.10 a barrel, up more than $4 from the $77.27 a barrel recorded a week earlier. The contract closed at a three-month high of $82.52 a barrel on 3 August.

In Europe, the September Brent contract was trading at $81.70 a barrel, an increase of more than $5 from the $76.39 a barrel it traded at seven days earlier. The contract closed even higher than WTI on 3 August, at $83.60 a barrel.

The average price for oil exported by the 12 members of the international oil cartel Opec also reached a three-month high during the week, peaking at $78.88 a barrel on 3 August, before sliding to $78.41 a barrel the next day.

Analysts at UK bank Barclays say the highs over $80 a barrel come as a result of increasing consumption worldwide, tempering fears over the global economy.

However, rising contract values were countered by the release on 4 August of new data on inventory levels in the US by the government’s Energy Information Administration.

The report showed that, while crude oil stocks had fallen by 2.8 million barrels to 358 million barrels, gasoline inventories had risen by 700,000 barrels to 223.1 million barrels, with supplies 10 million barrels higher than during the same week in 2008.

The Barclays analysts remain bullish on the prospects for higher prices, as the US economy picks up, spurring industrial activity.

“Currently, the rebalancing of the physical oil market remains on track, and thus we see $80 and above as the price aptly befitting fundamentals,” they say.

However, market analysts remain divided over the prospects for prices in 2011, as government stimulus packages in Western and Asian economies are replaced by austerity budgets to counter rising deficits.

One analyst privately remarks that prices could fall to levels as low as $20 a barrel over the coming year, should the global economy not continue its current rebound, while predicting prolonged periods of contracts trading at $40-50 a barrel, barely meeting the requirements of many oil exporting countries’ budgets.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.