Oil may tumble if financial factors removed: BP

SEOUL - Oil could face a ‘steep’ fall if financial factors are removed from the current market, which gained around 40 percent this year, the chief economist at BP BP.L said on Thursday.

By (Reuters)

Published: Thu 10 Jul 2008, 1:19 PM

Last updated: Sun 5 Apr 2015, 12:48 PM

Oil prices have more than doubled from a year ago, driven partly by geopolitical instability from Iran to Nigeria as well as expectations that global supplies will fail to keep pace with unrelenting demand growth in the years ahead.

Non-market fundamentals, including financial factors such as the easing of the US dollar against other currencies, have prompted investors to use oil and other commodities as a hedge against the weaker greenback and inflation.

‘If the financial investors move out of the market, then there could be a rapid fall, a steep fall in prices,’ Christof Ruehl told Reuters on the sidelines of the London-based company's 2008 Statistical Review of World Energy in Seoul. He declined to give an estimate on the fall.

‘Financial investors will look at real developments, and they will act upon them,’ he said, adding that financial factors were not triggering, but accelerating oil price fluctuations.

Earlier in June, BP CEO Tony Hayward said oil prices were unstable because markets were not well supplied, and higher taxes in producing countries were discouraging investment in new output.

Ruehl also said that inventory was the main factor that would determine oil prices, as there were very few new supplies coming into the market.

US light crude for August delivery was around $136 a barrel Thursday, falling nearly $10 from last Thursday's record high of $145.85 a barrel, mostly due to a stronger dollar that has reduced the appeal of commodities for investors.

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