Fortune Watch

The pace of global oil demand growth should increase next year as rising consumption in emerging markets outweighs declines in developed nations hard hit by the high fuel costs and mounting economic problems. The barrel of crude which sold for $65 in 2007 might soon cost $200.

With such astronomical increase coming on top of a credit crunch, economists are talking seriously about the prospect of world recession and, even the worse, stagflation – the lethal combination of inflation and economic stagnation last seen in the 1970’s and early 1980’s.

We are told it is all due to a world shortage cause by soaring demand for oil in China and India, and that we can expect record prices to continue for eight years.

But is this really the case? Nowhere in the world are people queuing at petrol pumps; there are no power blackouts and no idle tankers are waiting in the Gulf for oil.

On the contrary, oil storage tanks across the world are full, super tankers are queuing at ports to unload and no major oil field is closed. Across the world, 86million barrels of oil are produced every day which at the moment is sufficient, not least because consumption in America – which burns a quarter of the world’s supply every day – is actually declining.

Alarmists also say that the world’s oil supplies have passed their ‘peak’, that the world has consumed half of all its oil and that the remaining 1trillion barrels will be gone by 2025.

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Oil was unlikely to fall below $100 per barrel as strong demand from emerging economies such as China and India put a floor under prices, a member of Kuwait’s top oil council said in remarks published on Sunday.

Crude prices on the international market are unlikely to drop below $100 a barrel in the near term despite shedding almost $33 per barrel in a month, oil market experts said on Monday.

They say they don’t anticipate a full-blown collapse in crude prices despite a slowdown of the US economy, the world’s biggest oil importer. Neither do they see a major spike in crude prices due to the latest geopolitical tensions erupting between Russia and Georgia, which has led to Russia resorting to airstrikes and pounding Georgia’s capital, Tbilisi.

“The oil market doesn’t seem to be very perturbed by the happenings in Georgia. There is a downward bias in the oil market that will continue for a little while,” said Dalton Garis, associate professor of Economics at the Petroleum Institute in Abu Dhabi.

On Monday, in early trade, Brent crude futures on the ICE in London were trading a shade above $114 a barrel. In contrast, on the New York Mercantile Exchange, the Nymex crude oil futures for September delivery in the US were trading close to $116.50 per barrel.

“The crude prices in the near-term look like trading in a range of $100-$120 a barrel,” said an oil analyst, who didn’t want to be identified.

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