19 November 2007
LOW US OIL INVENTORIES AND LACK
OF SPARE OPEC CAPACITY BEHIND RECENT SPIKES IN OIL PRICE
Alliance Trust says that a drop in US stores
of oil as winter approaches along with oil group OPEC’s lack of spare capacity
are the two most immediate reasons for the sudden jump in oil prices that have
moved close to the $100-a-barrel mark. Since July oil prices have gone from $73
a barrel to $94 a barrel and worsening political tensions involving oil
producing countries such as
Angus McPhail, Global Oil and Natural
Resources Analyst, said, “There has been
no respite in the tight balance between supply and demand. The main reason for
this recent spike is that
McPhail said that there were other factors
adding to the rising oil price but not all have equal weight. He said that the
role of speculators had not increased notably. “Hedge funds are using oil and other commodities as a form of asset
class to make money, however, according to the US Commodity Futures Trading
Commission, the share of non-commercial positions in crude oil stood at only
9%. When oil stood at US$40 per barrel the level of speculation was the same as
it is today,” McPhail said.
He said that while some attribute the moves
in the oil price to dollar weakness this was a lesser factor.
“A range of
commodities do exhibit a correlation to the US dollar with gold having the
strongest correlation, but for oil this is a weaker link that is muddied by the
strong effect of geopolitical concerns.”
McPhail believes that the long-term average
of oil will remain around $60 a barrel or more for at least the next three
years because of many factors underpinning the price including the lack of
investment in oil development over the recent years and a range of political
risks that mean there is more pressure for it to stay high, than drop below its
long-term average of $41 a barrel.
He singles out
McPhail said that Iran was a risk too because
there had been a distinct hardening of the US position, through the imposing of
UN trade sanctions, as well as the US Senate’s decision to pass a resolution labelling an arm of the Iranian military as a
terrorist organisation, which gives the US a defacto authorisation to use
military force against Iran. The gradual ramp up in pressure against
-- ends --
Notes to editors
1.
2.
Photographs of Angus McPhail are
available.