Oil Prices Dip, Strong Upside Potential
Oil futures dropped by about 40 cents when the London market opened yesterday. However, analysts say the market is extremely volatile.
"The market will stay under pressure for some time to come. "The downward pressure is minimal, the upward pressure is very real," says Peter Lardner of Petroleum Intelligence Weekly.
Another casualty of the Gulf crisis is the international aviation industry. Airline stocks tumbled today on fears of higher oil prices and terrorist activity. "Airline stocks have taken a big hit because of the fear of terrorism and less tourism", says an analyst.
Oil prices, which hit a high of 23.90 in Singapore on Tuesday slid yesterday, triggering a fall in Europe. In late morning trading in London, Brent crude, which is the oil industry benchmark, was at quoted $ 21.80. That was down from yesterday's high.
Analysts say that the same trends are likely to be played out in the US market, "We expect the same scenario in New York. Prices will probably soften a bit," says Lardner.
Oil industry analysts predict that the Indian rupee could face pressure in the next few days. India's economy has traditionally been vulnerable to oil price movements.
On the international market, they predict that oil is likely to move in a range between $ 21 and $ 23 over the next few months. "It is unlikely to move lower. Any volatility in the Middle East puts a floor on the price of oil," says an analyst.
The US attack on Iraq has hit the oil industry particularly hard because international stocks are lower now than they have been for quite some time. In July 1995, the OECD countries had stocks for 14 days. That dropped to about 12 days in July 1996. "It is a sizeable amount and is being felt," says Jan Stuart, editor Oil Market intelligence.
Stocks are lower this year because for a combination of reasons. In the US some companies decided to hold lower stocks last year. That was combined with a harsh winter which pushed up demand. "There were some disappointments on the supply side and higher demand because of the weather.