Crude oil to remain in high-price territory

Updated: 2007-12-10 10:27

NEW YORK -- Although crude oil prices have temporarily given up conquering the 100-dollar threshold some 20 days before the year is drawing to a close, analysts here believe oil prices will finally cross the 100-dollar mark before hovering around the 90-dollar borderline for a while.

This is mainly because the global demand for oil has exceeded the supply and the situation seems hard to reverse, analysts said.

2007 has witnessed a rapid hike in oil prices with the 80-dollar and 90-dollar marks crossed on September12 and October 23, respectively. Furthermore, crude oil prices touched intraday highs of 98.62 dollars and 99.29 dollars on November 7 and November 21, respectively -- just one minor step away from the psychologically sensitive 100-dollar mark.


The US Department of Energy (DOE) said in a report that strong demand and limited supply is the root cause for the high price of oil. The DOE said oil producers are turning out 84.64 million barrels a day, while consumption is 85.7 million barrels a day.

The daily deficit is more than one million barrels and is expected to increase next year, it said.

"The background for the strengthening crude prices throughout 2007 is the growing deficit between global oil demand growth and the non-OPEC supply growth," senior oil market analyst at BNP Paribas Commodity Derivatives Harry Tchilinguirian said.

Shanquan Li, vice president of the Global Equity Group in Oppenheimer Funds, told Xinhua that the growth rate of crude oil exploration and production falls behind the growth rate of market consumption.

"This contributes to the soaring oil prices in recent years," he said.


Apart from the fundamentals of supply and demand, many other factors have also played significant roles in boosting oil prices.

Pingfan Hong, senior economic affairs officer of the United Nations Department of Economic and Social Affairs, said the falling dollar, as a result of the two consecutive cuts in interest rates by the US Federal Reserve, dropped to a new low against a basket of world currencies, making oil prices relatively "cheaper" for euro or other currency holders.

Oil futures offer a hedge against a weak dollar, Hong said, adding oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. Still, many other people believe that speculation of oil "adds fuel to the fire."

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