Decline in oil prices is over, analysts say demand rising

August 09, 1994|By New York Times News Service

The decline in oil prices that helped bring down inflation in the United States to 3 percent may be ending.

Many oil analysts and economists are suggesting that this year's sharp price increases, which have brought the price of oil up nearly $6, to around $20 a barrel, are going to hold. Some others contend that they see signs that point to rising oil prices for the rest of this decade.

"Using a very reasonable set of assumptions, I can foresee several years of price increases after 1995," said Vahan Zanoyan, senior director at Petroleum Finance Co., a consulting firm based in Washington.

"I personally think demand will be exploding because of a rapid coincidence of demand in the Far East, Europe and North America. And at current prevailing prices, I don't think the global oil industry is ready to accommodate a synchronized push in demand."

An executive at an oil trading company, who asked not to be identified, said the calculus looks like this:

"Total production is about 70 million barrels a day," the executive said. "Demand growth is increasing by 1.5 million to 2 million barrels a day, per annum, the equivalent of Kuwait's current annual production. The big supply sources over the past few years are coming to an end, and for the first time anyone can remember, OPEC has no substantial excess capacity."

Oil prices have been on a slow but steady rise since mid-February, when spot prices for a barrel of West Texas intermediate crude bottomed at $13.95 a barrel.

In the past few weeks, strikes by Nigerian oil workers have stoked concerns about widespread and long-lived disruptions in the supply of high-quality Nigerian crude. Those worries have driven up spot oil prices about $2 a barrel. The price of light sweet crude for September delivery closed yesterday at $19.42, up 11 cents on the New York Mercantile Exchange.

Nigeria, which produces about 1.9 million barrels a day when its workers are not on strike, is not the only big oil producer that is having political problems and could have production disruptions. Tensions are rising in Algeria, which produces just under 800,000 barrels of oil a day, and in Venezuela, which pumps more than 2.4 million barrels daily.

And with these problems on the production side, demand is rising. "We are seeing an acceleration of demand for oil, at least as far as the United States is concerned," said Bernard J. Picchi at Lehman Bros.

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