Cost of oil rises, but OPEC uncertain over future demand

13 May 2011

13 May 2011 | Lindsay Clark

The average price of oil was up $8.25 (£5.06) in April compared with March, reaching $118 (£72.42) a barrel.

The Monthly Oil Market Report from the Organization of the Petroleum Exporting Countries (OPEC) also reported the average monthly basket price had gained $35.76 (£21.95) compared with a year ago. April was the ninth consecutive month in which the basket price had increased.

Escalating oil prices have caused the cost of a whole range of goods bought by businesses to increase. However, the report found it was difficult to tell if more recent falls in the oil price were indicative of future reductions.

“On 5 May, crude oil prices plunged, with Brent futures shedding more than $10 (£6.14) per barrel, and on the following day, prices fell even further. This sharp correction was the result of a huge sell-off in commodity markets including oil, which triggered profit-taking as losses gained momentum,” the report added.

In predicting future demand, more fragile recoveries in the US and Japan were offset by growth in developing economies, particularly India and China.

“These economic uncertainties are clouding market needs for the remainder of the year,” the report said. “If the slowdown in the US economy were to persist, this would likely affect demand growth. In Japan, the recent catastrophes have already dramatically reduced oil consumption… in contrast, Chinese economic growth continues to be stronger than expected.”

OPEC’s spare capacity, adequate stock levels and lower demand for its crude oil during the first half of the year should help market stability, it said.

Meanwhile, the International Energy Agency found in its monthly Oil Market Report that oil prices are set to remain high despite moderating demand.

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