G-20 Ministers Say Oil Price May Decline to US$35-40 a barrel

G-20 Ministers Say Oil Price May Decline to US$35-40 a barrel
22 November 2004

The cost of oil will probably decline though prices will fluctuate as production capacity remains limited, finance ministers and central bankers from the Group of 20 industrialsed and developing nations said. Based on futures markets oil prices are expected to fall to the US$35-$40 range in the medium term,’’ according to a note prepared for this weekend’s meetings. The likelihood of the continued low level of spare capacity indicates that oil prices are likely to remain sensitive to unanticipated shifts in supply and demand,’’ said the note written by staff at the International Monetary Fund, the International Energy Agency and the Group of 20 secretariat and dated Nov 9.

The IMF forecasts global economic growth will cool to 4.3 per cent next year from a three-decade high of 5 per cent in 2004, in part because of the 49 per cent surge in crude prices this year. Oil reached a record US$55.67 a barrel on Oct. 25. The New York Mercantile Exchange crude for December delivery added $2.22 on Nov. 19 to US$48.44 per barrel.  Projections of demand and supply of crude oil suggest that spare capacity may remain low through 2010, as the current set of capacity expansion and replacement projects are expected to just keep pace with demand,’ the Group of 20 said.  Limited increases in production potential mean events such as the war in Iraq or bad weather will continue to affect prices, finance ministers and central bankers also noted.

Crude oil inventories in the US rose for an eighth week last week and refineries operated at their highest rate since Hurricane Ivan forced plants near the Gulf of Mexico coast in September to curb processing. US stockpiles of distillates, a group of fuels that includes diesel and heating oil, unexpectedly declined 1 million barrels to 114.6 million the week ended Nov. 12 as the weather grew colder, the U.S. Energy Department reported Nov. 17.  Unusually cold weather can add up to 1 million barrels a day to daily world oil consumption, or about 1.2 per cent, said Peter Luxton, an analyst at Informa Global Markets in London. Periods of higher-than-normal temperatures can reduce demand by the same proportion, he said. (Bloomberg News).

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