Crude prices are likely to remain on the boil, says UK-based CGES

ABU DHABI — The Iranian crisis is unlikely to fade away, which means that oil prices are likely to remain on the boil, said Centre for Global Energy Studies (CGES), a London-based energy think-tank in a report yesterday.

By Haseeb Haider

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Published: Sat 29 Apr 2006, 10:09 AM

Last updated: Sat 4 Apr 2015, 2:01 PM

Following IEAs upward revision of historical oil demand, global oil stock cover is now lower than

previously thought, compounding the existing impression that the market will remain tight because of supply difficulties.

Spare capacity remains limited throughout the supply chain and in this constrained market environment the impact of output losses and fears of further supply disruptions have been magnified. Oil prices have thus set new records as the market feels the weight of geopolitical pressures bearing down on an industry that is not exactly flush with oil.

Looking ahead, there is little prospect of oil prices weakening, unless geopolitical tensions fade away or there is a collapse in oil demand, neither of which seems likely at the moment.

Given the spate of high oil prices during the last two years, global oil demand growth has more than halved

from the 4 per cent of 2004; however, oil consumption is still rising by around 1.5 per cent a year because economic growth remains strong.

The IMF's upward revisions to its historical growth figures for the world correspond with upward revisions to historical oil demand by the IEA and both organisations see stronger growth than previously thought in the Middle East and developing Asia.

The revisions to historical oil demand have nearly halved the 2005 inventory build to less than 0.4 mbpd, leaving global cover at the start of 2006 at just 70 days, down five days' worth from last month's CGES estimate.

The supply side of the oil balance continues to disappoint. Oil supplies from both Opec and non-Opec producers

are well down on the levels expected just four months ago. A string of problems in key non-Opec countries

have left production in 1Q06 almost 1 mbpd below what was expected.

What really seems to worry people is the likelihood of an attack on Iran fuelling anti-Western feeling in Islamic countries and thus sparking a much more widespread loss of oil supplies.

Sadly for beleaguered consumers, there is scant sign that oil prices will weaken any time soon, the market will carry on in its current state, weighed down by concerns over the adequacy of future oil supplies.

There has been a progressive decline in the world's spare oil production capacity.

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