Discouraged Investors from Weak Fundamentals to Lead to Sharp Drop in Oil Prices: American Analyst

Azerbaijan, Baku, 18 April / corr. Trend A. Badalova/ American Energy Securities analytical company (ESAI) forecasts that the price of WTI will remain above $90 per barrel this summer. The oil prices once again reached the record level of above $115 per barrel on 17 April. The May futures on light oil in New York Exchange rose by $1.14 up to $114,93 per barrel. The May futures on Brent increased by $1.02 up to $112.60 per barrel.

The ESAI expert on oil market Andrew Reed said that the rise in oil prices is attributed not only to the elementary principles of market economy, but monetary factors as well. "The question now is when will market fundamentals grow weak enough to discourage investors, and, when that happens, how sharply will the price of oil fall," Reed said to Trend .

Many experts believe that the current rise in oil prices was caused by the drop in the dollar and the fact that American government announced that its reserves had exhausted. The rise in oil prices also made OPEC not alter its forecast on the demand for oil for 2008 and to leave it as 86,97 barrels per day.

According to Reed, it is unlikely that OPEC will reduce the output. "One reason is that producers cannot ignore high oil prices (i.e. big profits). This will discourage oil producers, including OPEC member countries, from decreasing oil production," he said.

According to American expert, OPEC will be reluctant to increase its output due to past events. "OPEC increased production around the time of the 1998 financial crisis. Weak demand for economic reasons combined with strong supply supported by OPEC's increased output caused oil prices to plummet. OPEC is concerned that this scenario could repeat itself," he said.

According to Reed, right now it is not supply and demand alone that is driving oil prices. Factors in the financial community, such as the continued weakness in the dollar, and equity markets, have encouraged funds to move into oil. The question now is when will market fundamentals grow weak enough to discourage investors, and, when that happens, how sharply will the price of oil fall.

The correspondent can be contacted at: [email protected]

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