Oil prices are hovering around the level of USD 110 per barrel, with some volatility in prices, as usual. There are new factors that have made their entry into the oil markets recently, and began to play an important role in shaping the critical balance in oil prices. The most important of these factors is the economic slowdown in China and the Asian countries. This suggests that we may see a fall in demand for oil should these conditions continue, pushing prices down. Meanwhile, Israeli Prime Minister Benjamin Netanyahu has been making repeated statements regarding a possible a preemptive strike against Iran's nuclear facilities, to take place shortly before the U.S. presidential election on November 6, 2012. This has fed fears in the markets over the prospect of shrinking supplies and subsequent increases in prices. In addition, the security situation in Nigeria has seen further deterioration recently, which may very well affect the safety of oil supplies from this African nation. But, despite all this, prices are poised to remain around the USD 110 level throughout this year, as OPEC's forecasts indicate. The OPEC average basket price in July was about USD 99.55, then USD 109.52 in August, and USD 111.55 in September. In 2011, the figure was USD 107.46 compared to USD 110.24 this year, so far. OPEC's most recent Monthly Oil Market Report predicts that global demand for oil will remain near the forecasted level, i.e. 900,000 barrels per day, due to high temperatures in the summer in the northern hemisphere, and the continued closure of most Japanese nuclear power reactors and subsequent use of petroleum products to generate electricity there. From a markets' point of view, the priority goes for the economic and financial crisis, particularly those afflicting the Eurozone and the United States, and which have impacted a broader area as a result of global economic interdependence. As a result, there has been an economic slowdown in China, the country whose economy has had the key role in the increase in oil demand worldwide. During this year, the Chinese economy posted the lowest growth rate in 3 years, as result of the slowdown in foreign investments, reduced demand for Chinese exports and shrunken industrial output, for the 11th month in a row. Other data also points to a slowdown in other Asian countries (the main source of the increase in global demand for oil), such as India, Japan, South Korea and Singapore. The coincidence of these negative global economic data, limits the growth of the global economy, which leads to a contraction in the demand for crude oil, and thus to lower oil prices. Several OPEC member states are calling for a cap on price rises, so that demand for oil does not fall to low levels, and also to help the recovery of the global economy. This group of OPEC members, led by Saudi Arabia, is seeking to stabilize the price of crude oil at USD 100 per barrel. Last week, Christine Lagarde, Director of the International Monetary Fund (IMF), said that the IMF could cut its forecast for global growth next month, due to the European financial crisis. She added that the IMF cut its forecast for global growth in 2013 to 3.9 percent and 3.5 percent for the current year. She also pointed out that the euro zone debt crisis posed the greatest risk to the global economy, but also that the U.S. financial problem represented a significant threat. On the other hand, there is a marked decrease in the volume of oil supplies in the markets, especially as a result of the economic sanctions on Iran and its oil sector in particular. Official Iranian sources have stated that Iranian oil exports have indeed fallen to 800,000 barrels per day last July, compared to 2.4 million barrels per day throughout last year. In addition, the unrest in Libya is taking its toll, where some international oil companies continue to be reluctant to send their staff back to the oil fields, especially following the assault on the U.S. consulate in Benghazi. This has raised fears of chaos and escalating clashes among the armed militias. Then recently, there have been renewed concerns in the market regarding falling output in Nigeria, the largest oil-producer in Africa, with the successive assassinations perpetrated by the radical group Boko Haram, in addition to repeated bombings targeting oil pipelines by the Niger Delta People's Liberation Front. In addition, markets fear that the surplus productive capacity of the Gulf countries, which produce at very high capacities that approach their maximum levels, may fall. This is a cause for apprehension in the markets, regarding the additional quantities of oil that are actually available, and which the Gulf countries can tap into to supply its clients in the event of a new large-scale interruption in supplies. Yet, despite these concerns, OPEC's monthly bulletin indicated that the output of the organization's 12 member states reached 31.41 million barrels per day in August, compared to 31.16 million barrels per day in July. These are indeed very high outputs that OPEC has not witnessed for years. The main reason for prices rising to their present levels is the Iranian nuclear program and the Western economic sanctions on Tehran, as well as mutual threats over a large-scale military confrontation that may lead, among other things, to the closure of the Strait of Hormuz. Prices have risen to their current levels because of mere threats. But according to statements by Iranian oil officials, it is possible that prices may soar to around USD 150 per barrel. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
