Opec president says the drop should come if geopolitical tensions over Iran ease and the dollar stages a recovery.
'Oil will fall to $80'
Oil prices should fall to US$70 to $80 a barrel in the long term if geopolitical tensions over Iran ease and the dollar stages a recovery, the president of Opec said today. The bearish projection by Chakib Khelil, of Algeria, reinforces a shift in sentiment on global energy markets since prices peaked at close to $150 a barrel on July 11. They have already fallen by more than $20, or 16 per cent, from the high.
"The price today is abnormal at $123 a barrel," said Mr Khelil during a trip to Indonesia. "If the dollar continues to strengthen and the political situation [regarding Iran] improves, then the long-term price will be about $78," he added. Only a month ago, Mr Khelil said oil prices could reach $170 a barrel. Lehman Brothers, the American investment bank, has added to the bearish tone with a forecast that crude prices would break below $100 by the end of the year because of concerns that high prices and slowing economic growth are hitting demand.
Crude oil futures for September delivery fell $1.49, or 1.2 per cent, to $123.24 a barrel in early trade in New York yesterday. The dollar has weakened by 13 per cent against the euro in the past year, but has staged a modest rally in the past few weeks. "A stronger dollar translates into weaker crude," said Tom Bentz, a broker at BNP Paribas in New York. "The market is still kind of in this downwards trend here in the short term, and is having trouble turning back up."
Oil prices are still 60 per cent higher than one year ago. Opec has consistently said it has no hand in the rise in oil prices above $100 a barrel, blaming the spike on speculators, the weak dollar, instability in Iraq and Iran, and a lack of refining capacity. "The current price isn't connected at all to supply and demand, because we cannot explain changes of $20 in one day or two days only due to supply and demand," Mr Khelil said. "Supply and demand doesn't change in one day."
Mr Khelil declined to say how Opec would respond to falling prices, but added that supply was meeting demand for oil, and the market was balanced. "We are not worried about any price, because we don't decide the price. We just meet the demand," he said. Opec, which supplies more than 40 per cent of the world's oil and two-thirds of exports, meets in Vienna on Sept 9 to review output after freezing its production ceiling at its past three meetings in December, February and March.
Indonesia is Opec's only member in the Asia-Pacific region, but has announced plans to leave the organisation because its production has slumped and it now imports more than it exports. The nation's energy minister, Purnomo Yusgiantoro, said Indonesia had not yet officially submitted documents to withdraw from Opec, but added the country's interests were no longer in line with the exporters' group.