The immediate driver behind higher oil prices has been a string of interruptions in pipeline operations in Nigeria and the Caspian region, as well as a shutdown of Mexican exporter terminals in the Gulf Coast because of bad weather. While small, these interruptions underlined how reactive the market is to the slightest disruption in supplies.
Despite slowing economic growth worldwide, in particular in the United States, energy prices are showing no signs of slowing. The International Monetary Fund recently slashed its global growth forecast as the financial crises spreads and warned the United States economy might shrink.
The darker outlook prompted the International Energy Agency, a forecaster for developed countries, to cut its estimates for global oil demand this year by nearly half a million barrels a day. The energy agency expects oil consumption to grow by 1.3 million barrels a day in 2008, to 87.2 million barrels a day. That is 460,000 barrels a day less than its previous forecast.
The United States is the worldâ€™s top oil consumer, accounting for nearly a quarter of global demand
Russiaâ€™s production is reaching a plateau after its post-Soviet recovery, for example. Mexicoâ€™s production is declining because of insufficient investments by its state-owned oil company, Pemex.
But this week also brought some potentially positive news for the future growth in supplies. The head of Brazilâ€™s national oil agency suggested the country had discovered a massive offshore oil field that could potentially be three times bigger than the countryâ€™s current proven reserves.
But little relief is expected in the short term. OPEC does not want to step in and bring prices down by increasing its production, as it expects oil demand to fall in coming months. The oil group accounts for 40 percent of the worldâ€™s oil exports. Its members are not scheduled to meet until September.
Members of the Organization of the Petroleum Exporting Countries consider the global market well stocked with oil â€” that there is no shortage anywhere â€” and that prices are being conditioned more by market psychology than fundamental factors.
Saudi Arabiaâ€™s oil minister, Ali al-Naimi, suggested last week that the current oil prices had little to do with global supplies.
â€œI am not going to pull back, Iâ€™m not going to dump crude on the market,â€ Mr. Naimi told reporters last week, according to Reuters.
On Saturday, Saudi Arabiaâ€™s King Abdullah also suggested that new oil discoveries in the kingdom would remain untapped to preserve the nationâ€™s wealth for future generation, according to various wire reports. â€œLet them remain in the ground for our children and grandchildren who need them,â€ the king said in a speech, according the official Saudi Press Agency.
In its latest monthly report, OPEC said on Tuesday that it expected global demand to fall 1.4 million barrels a day in the second quarter, a period of the year when consumption in the northern hemisphere typically slows after demand for winter fuels falls.
Analysts have also blamed a weak dollar for pushing up oil prices as investors seek to buy commodity assets to hedge against the falling value of the dollar, as well as rising inflation. The dollar has dropped against the euro because of concerns about the states of the American economy. It recently traded at $1.5811 against the euro, close to its lowest levels.
â€œThe financial investors are coming at you from the sovereign funds, hedge funds, pension funds, and commodity fund managers are all betting on the weak dollar,â€ said Lawrence Goldstein, an economist at the Energy Policy Research Foundation. â€œThis is now as much about the direction of the dollar as it is about the direction of oil.â€