Speculations over conflict with Iran not to be decisive in long-term oil prices course

Oil&Gas Materials 6 January 2012 17:34 (UTC +04:00)

Azerbaijan, Baku, Jan. 6 /Trend A.Badalova /

Escalation of the financial crisis in the euro-zone will offset speculations over conflict with Iran, thereby leading to the significant drop in world oil prices in 2012, analysts of the British leading consulting company on economic studies Capital Economics believe.

"Oil prices have started the new year strongly due to fears about the impact of developments in Iran and Nigeria on supply and increased optimism about the prospects for global demand. But we expect both of these factors to reverse over 2012 as a whole, dragging prices significantly lower," analysts said in their report.

Following trading on Thursday, Jan. 5, WTI February futures at NYMEX decreased by $1.41 to $101.81 a barrel. Brent February futures at LSE decreased by $0.96 to $112.74 a barrel.

Capital Economics' analysts believe the main upward pressure on oil prices this week has come from tensions between Iran and the West. They expect that the closure of the Strait of Hormuz could lift the price of Brent crude to as high as $210 per barrel, albeit only temporarily.

However, analysts also believe that neither side would want tensions to spiral this far out of control.

Earlier Iran warned that in case Western threats of imposing an oil embargo on the Islamic Republic take effect, it reserves the right to respond by choking the oil flow through the Strait of Hormuz, arguing that the free flow of oil must be for all or for none.

The possible closure of the waterway would have serious consequences for the world economy as it would greatly reduce crude oil, petroleum and liquefied natural gas supplies.

"Indeed, the threat of another "super-spike" in oil prices when the global economy is still so fragile is itself a very powerful reason for the West to hold off from any military action. There will doubtless be plenty of noise from both sides, but this is unlikely to be decisive in determining the course of oil prices for very long," analysts said.

British analysts expect the bigger risk for oil prices to collapse due to an escalation of the financial crisis in euro-zone, which will impact on demand from the region and provide additional support to the US dollar.

Analysts predicts Brent price at $85 per barrel by the end of 2012.