Oil markets are trying to find a level somewhere around $100 a barrel but prices may fall further later in the year if the US financial crisis hurts the global economy, the deputy head of the International Energy Agency (IEA) said today.
Oil was unlikely to fall to $60 but it wouldn't get back up to $150 this year, either, IEA Deputy Executive Director William Ramsay told Reuters in an interview.
"It seemed almost that ($147 per barrel) was a turning-point in economies and in the mind of speculators. They built this one up and said to themselves: 'It's time to go somewhere else'," he said.
After hitting a record high of $147.27 on July 11th, oil hit a low of $91.36 a barrel this month, partly due to weak demand in the United States, the world's top oil consumer, and other developed economies.
Mr Ramsay said he didn't think it particularly likely that the level of $147 a barrel would be seen again this year. But he added: "I can't say we won't. You just need a significant accident somewhere."
Mr Ramsay was speaking on the sidelines of a seminar on regional power generation in Bangkok.
Oil rose above $105 a barrel today on hopes that the US government's proposals to restore stability to the financial system would succeed and lend support to global energy demand.
Even so, Ramsay said there was still downward pressure on demand.
"New fundamental issues" such as a significant downward revision in non-OECD demand growth - specifically in China and India - could mean a downward adjustment to global prices.
Mr Ramsay said $100 a barrel was too high because that bore no relation to the cost of producing oil.
"That's driven by imbalances between supply and demand, by some geopolitics, that is probably aggravated by speculation," said Mr Ramsay.
He did not think prices would shoot back up towards $150 as many speculators had left the oil market.
"Is the commodities area as good as it was? I don't think so ... I don't think that money is flowing back in," he said.
Mr Ramsay said various IEA studies had shown that speculators were not causing unreasonably high oil prices, but were exploiting the market imbalance between demand and supply.
"When you get a tight energy supply and demand balance and geopolitics, and those speculators feel they can make money on that from going up or down, so they move in," he said, suggesting the imbalance had been addressed.
"I would say, potentially, supply/demand fundamental tension in the oil market right now is less than it was, so there's less speculative interest."
He disagreed with the idea of regulating speculators in the oil market, calling speculation "part of the price discovery mechanism".
"If we try to regulate markets to curb speculation, we would bungle it. We wouldn't do well. Every commodity market needs speculators," he said.
Reuters