Azerbaijan, Baku, 16 August / Trend corr. A.Badalova/ Interview with the Administrator of the U.S. State Energy Information Administration Guy Caruso:
Question: What caused the current sharp drop in oil prices? Do you think the current decline in oil prices is temporary? What is your forecast for the further evolution of prices?
Answer: There are a number of factors that have likely contributed to the sharp drop in world oil prices. First, the decline in demand for liquid fuels in the United States and other Organization for Economic Cooperation and Development member countries, because of a combination of high fuel prices and the weakening U.S. economy, will lower demand for liquid fuels in the short-run. Next, easing of geopolitical tensions, especially in Iran has reassured markets that supplies are not, in the near-term, in jeopardy. Various other short-term phenomena have also helped to reduce world oil prices, including U.S. petroleum stock reports, which last week suggested a large build in motor gasoline stocks reflects the likelihood that demand for liquids in the United States will remain weak, the fact that recent hurricane Dolly, which entered the U.S. Gulf of Mexico did not have a strong impact on oil and natural gas production interests, and a strengthening U.S. dollar.
Question: Iran's OPEC governor said world oil prices could reach as high as $500 per barrel in a few years. It could happen if the dollar's value continues to decrease and the political crisis becomes worse. How feasible is such rise of oil prices in a few years?
Answer: We do not believe that world oil prices will, in the next few years, reach a sustained $500 per barrel. Our August 2008 Short-Term Energy Outlook expects average annual prices for West Texas Intermediate to continue to rise, averaging $119 per barrel in 2008 and rising to $124 per barrel in 2009. The volatility in recent price movements make it impossible, however, to predict how high world oil prices may or may not spike given the tight oil market environment we have observed in the past several years.
Question: What are the main ways to maintain a stable situation on the oil market?
Answer: Bringing supply and demand into balance, either by easing demand or increasing supply that would provide sufficient spare production capacity would to a large extent stabilize world oil markets. Supply increases could be in the form of conventional petroleum from OPEC or non-OPEC producers or from unconventional sources, such as the anticipated increase in U.S. ethanol production.
Question: Does the world need cheap oil today?
Answer: As a policy-neutral organization, it would not be appropriate for EIA to suggest a strategy for OPEC producers.
EIA is a policy-neutral organization and, as such, we are not in the position to say whether the world needs cheap oil. When supply and demand are out of balance (most recently with demand growth outpacing supply growth), high world oil prices can help to reduce oil demand, and thus bring the markets back into balance. That said, the world's economies have continued to function despite oil prices that have, on an average annual basis, continued to rise since 2003. On the other hand, an easing of world oil prices would reduce the burden of costs to consumers who would then be able to spend their incomes on other products and services, thus increasing economic activity and trade, resulting in a growth in gross domestic product.
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