With oil market experiencing a volatile trend, a cloud of uncertainty hangs over the market that is not good for either consuming countries or producers, a top oil official has said.
"High oil prices are good for producing countries especially if they are investing billions of dollars to ensure that oil flows for the next 20 years. But more than high prices, oil companies need stable prices so that they can plan for returns on their investments. The same principle applies to consuming countries," according to Ali Obaid Al Yabhouni, Planning and Group Coordination Manager at Abu Dhabi National Oil Company (ADNOC).
As world oil market experienced a volatile trend during September and early October, a cloud of uncertainty hangs over the market that is not good for either consuming countries or producers despite OPECs best efforts to ensure energy consumers remained well supplied, he said.
"Under the present circumstances, the future is uncertain. Above all, producers have to be sure that they will be able to sell their crude oil and for that they need the world economy to remain healthy," he was quoted as saying by the Emirates news agency.
Yabhouni said OPEC ministers met in Vienna in September at a time when the oil price was hovering around USD 70 leading to calls from consumers for increased production in order to lower prices.
At the time, many OPEC countries argued that the market was well supplied but they agreed to increase production by 500,000 b/d in order to show, once again, that they were ready to supply as much oil as the market needed.
But, he added, since then prices have continued to rise, reaching an all-time high of more than USD 84/bbl for WTI, the US crude oil benchmark, in early October.
Markets appear to have been concerned about a small fall in US crude stocks, weather conditions in the Gulf of Mexico which shut down some oil rigs and geopolitical factors.
According to the top official of ADNOC, world economic growth remained good through much of 2007 but uncertainty in financial markets caused by the sub-prime mortgage crisis casts a dark cloud over the future.
Yabhouni said recession in the US could quickly have a knock-on effect on other economies and world oil demand would quickly be affected.
Citing OPEC projections, he said the group's secretariat believes that the world economy will grow by 5 percent in 2007 and by a 4.9 per cent in 2008.
In the meantime, demand for OPEC oil continues to grow. The OPEC secretariat believes world oil consumption will grow to around 85.7 mn b/d, an increase of close to 1.3 mn barrels over last year.
After discounting the increase in non-OPEC production, demand for OPEC crude is likely to rise by 100,000 b/d to 31mn b/d.
He said OPEC estimates that if current demand rises further, member countries will have to increase production. However, with fears of a weakening in US economic growth in 2008 growing, OPEC notes that demand could be lower than expected.