Oil prices surge due to strong economy, low stocks

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Last updated at: (Beijing Time) Monday, January 19, 2004

Oil prices surge due to strong economy, low stocks

World oil prices have kept surging in the past two weeks, buoyed by upbeat forecast for world economic growth, tight US oil stocks and a weak US dollar.

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World oil prices have kept surging in the past two weeks, buoyed by upbeat forecast for world economic growth, tight US oil stocks and a weak US dollar.

US crude oil prices shot to a 10-month high last week, topping 35 US dollars a barrel for the first time since the Iraq war, on fears that freezing US weather will strain crude oil inventories already at their lowest level since 1975.

Analysts here believe that an outlook of economic recovery in 2004 has stimulated the demand for crude oil. A 3.5 percent growth for global economy, predicted in a recent UN report, is certain to boost oil consumption. Oil demand in 2004 is expected to rise by 1.5 percent or 1.1 billion barrels a day.

The Forbes magazine estimated that oil prices in 2004 will stay high due to high demand and short supply.

Despite high prices, OPEC, the organization for oil-exporting countries, has not decided to increase output substantially to cool the market.

OPEC is unlikely to increase its production ceilings until it meets on Feb. 10 in Algiers.

OPEC raised its actual production by 195,000 barrels per day in December 2003 to a daily output of 27.9 million barrels, the highest level since March 2001, said the Paris-based IEA, which represents the interests of oil-importing nations.

Total OPEC crude supply averaged 27.6 million barrels per day in November, up 255,000 barrels per day from October, mainly due to a rise of 320,000 barrels a day in Iraq.

Meanwhile, US crude stocks continued to fall in early January, dropping 6 million barrels below the notional minimum operating level of 270 million barrels. Concerns over freezing weather in the United States further drain the country's already tight commercial energy inventories.

The weak dollar is another reason behind oil price surges since the prices are measured in dollar. The dollar hit a new record low against the euro at 1.275 on Jan. 14.

Saudi Minister of Petroleum and Mineral Resources Ali bin Al-n'aimi said earlier this year that the fall in the dollar was a major technical reason which pushed oil prices higher.

However, the production in non-OPEC countries may help curb the surges of oil prices. Russia, Norway and Mexico are increasing their oil output. Iraq is producing 2.3 million barrels a day and is expected to hit 3 million barrels a day later.

Moreover, if oil prices pierced 30 dollar per barrel, the world economy will slow down and then a fall in oil demand will result in low oil prices.

Source: Xinhua

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