After trading between $70 and $80 a barrel for most of the past year, oil prices have surged to a two-year high above $90 a barrel on the back of strong demand in emerging countries and factors, such as cold weather in most of Europe. Banks say $100 a barrel is not a question of if, but when in 2011. And even traders in physical oil, mildly bearish until a fortnight ago, are turning bullish now.
But with the global economy still emerging from the worst economic crisis since the Great Depression, are rising oil prices likely to put the kiss of death on the recovery?
Opec slide viewed by journalists in Luanda (Javier Blas/FT)
The Opec oil cartel has repeated it through the year: as a contribution to the global economy recovery, it was supporting moderate oil prices.
Saudi Arabia put numbers on the cartel’s words, describing the $70-$80 a barrel range as “excellent”.
For sure, Opec’s aim of $70-$80 a barrel – the group avoid talking about a target – has helped the global economy, particularly of poor oil importing countries.
But there are signs that the oil cartel is not as altruistic at it appears at first glance. Opec appears to be as concerned about the global economy as to drive consumers away from oil.
Iraq has set the stage for a fight with fellow Opec members about production levels, warning it has been “deprived of its fair share” of oil output for long time.
The warning by Hussein Sharistani, Iraq’s oil minister, comes after Baghdad invited foreign oil companies back into the country to develop its vast oil reserves. The return of the international oil companies promises to bring Iraq’s oil production from 2.5m barrels a day to as much as 12m barrels a day within a decade.
Sharistani said that Iraq’s output will not enjoy any “significant” increase next year or even in 2011. But he made clear that Iraq will fight for a larger quota soon.
Baghdad’s Opec quota has been suspended since, under Saddam Hussein, it invaded Kuwait in August 1990. In theory, the country is free to pump as much as it can.
As Angola prepares to host an Opec meeting for the first time, the country has done its best to welcome fellow nations of the oil cartel – a new convention centre, a five star hotel and villas for the ministers on the outskirts of the capital, Luanda.
The display of wealth – and the contrast with poverty elsewhere – could backfire, however. The country is Opec’s biggest buster of the cartel’s official production limits, something Luanda justifies on the grounds of its dire economic situation.
Angola, the group newest member, wrote a letter earlier this year to the Opec secretariat asking for exemption from current quotas on the ground that the African nation is grappling with the impact of a 30-year civil war which only ended in 2002.
Crude oil prices hit a fresh 2009 high on Thursday and approached $76 a barrel on prospects for higher energy demand and a weakening US dollar, the currency in which the commodity is priced.
Nymex November West Texas Intermediate hit an intraday high of $75.96 a barrel in early trade and later it was 48 cents higher at $75.66 a barrel. ICE November Brent rose to $73.86 a barrel and later traded 42 cents higher at $73.52 a barrel.
Oil prices have surged 60 per cent since January.