80 dollars per barrel from Putin

Oil prices rose again during the G8 meeting

Against the backdrop of the military conflict between Israel and Lebanon, oil prices are approaching a new psychological level - $80 per barrel. “The greater the instability in the regions where energy resources are produced, the higher the price,” Vladimir Putin said yesterday at a press conference after the G8 summit. - It has always been so and so it will be. We are seeing this now in the Middle East. Oil already costs more than 70 dollars per barrel, and soon, apparently, it will cost more than 80.”

At the end of last week, quotes in New York for futures contracts for August rose to $78.4 per barrel, and over the past few days there has been no significant decline. At the same time, experts note that there is enough raw material on the market. Moreover, according to OPEC forecasts, the growth rate of demand for rising oil prices will decrease. The true reason for the current situation, the cartel said in a statement issued yesterday, lies in “geopolitical processes that are outside the sphere of influence of OPEC”: “These processes have significantly aggravated the situation on the world oil market, which has ceased to adequately respond to the real relationship between demand and supply and in which Participants in speculative transactions are playing an increasingly active role in raising prices.” If the confrontation between Israel and Lebanon continues, then speculators will increase prices out of fear that the conflict will go beyond the borders of the two countries and will intensify the already unstable situation in the Middle East, which is the main supplier of oil to the world market.

This news added tension to the market, which reacts very painfully to the situation around Iran’s nuclear program, especially since this issue has returned to the UN Security Council, as well as to the terrorist attacks in Nigeria, where terrorists caused further damage to oil production infrastructure. “The Middle East is the oil barrel of the planet, and any tension here immediately affects the market,” says Mikhail Perfilov, development director at oil transportation company Fearnleys. -- Although Lebanon is not directly involved in oil production, consumers fear that the conflict could spread to neighboring countries, primarily Syria and Iran. And this will lead to serious disruptions in oil supplies to the world market.”

OPEC believes that due to high oil prices, global demand will grow more slowly next year than this year. The organization's report notes that it will increase by 1.3 million barrels per day (this year by 1.4 million barrels). However, the cartel believes, “the economies of developing countries will continue to grow at above-average rates,” although “countries closest to the US economy are at risk.”

Experts from the International Energy Agency (IEA), which unites oil consumers, on the contrary, are confident that the demand for raw materials until 2011 will increase faster than in the previous decade. On average, according to their forecasts, it will rise by 1.8 million barrels per day, that is, by 2% annually (versus 1.8% in the last decade), and by 2011 will reach 93.7 million barrels per day. At the same time, according to IEA analysts, next year demand will increase more than this year - by 1.57 versus 1.21 million barrels per day.

According to OPEC, the rise in oil prices continues despite the fact that the market does not experience a shortage of this type of raw material, supplies are ongoing without interruptions, and oil reserve reserves in industrialized countries exceed the average for the last five years. However, it is worth considering that futures contracts do not reflect the existing situation, but market expectations regarding deliveries in the future, experts say.

As Troika Dialog analyst Valery Nesterov notes, the cost of raw materials has not yet reached the level at which it was during the oil crisis in the late 70s. Converting prices from that period to today's, the cost of raw materials should be almost $90 per barrel, the expert says, adding that market players still “continue to use futures contracts to hedge risks.”

Denis REBROV