Oil won't swing back to $100 soon: Analysts

Last summer, after an unusually long period of relative stability, oil prices embarked on a downward journey, decreasing by half in just six months.

In the last few weeks, however, the market has worked on establishing a floor, enabling prices to regain some of the lost ground. Even so, they are unlikely to return to $100 a barrel soon, analysts say, and the consequences of the plunge have yet to play out fully.

The reasons for the sharply lower oil prices include increased supply from both traditional and non-traditional sources, such as shale; lower demand, particularly from high- intensity users such as China; and a change in the willingness of the Organization of Petroleum Exporting Countries (Opec), and Saudi Arabia in particular, to continue to play the role of swing producer (lowering production in response to declining prices, which in the past provided an earlier and broader floor for the market).

First, significant demand creation appears to be materialising more slowly than expected. Second, lower prices have created economic, financial and political pressures on some oil-producing countries - Nigeria, Russia and Venezuela - that, under certain conditions, could entail future disruptions in their supply to the global energy market. The impact has been to accentuate concerns about instability in countries such as Iraq and Libya.

Third, Saudi Arabia reaffirmed this week its November decision not to play the role of swing producer, and the oil minister added that this approach would be proven correct. Continued consolidation in prices is expected, though volatile at times, with a tendency toward higher oil prices over the course of the year. There will be no quick return to the $100 level.