The energy roller-coaster keeps turning.
Only days after saying oil would trade at $70 without speculation (See: “Oil’s Indecision”), and dollar weakness adds $40 to prices, OPEC president Chakib Khelil now contends that $200 per barrel forecasts are not based on fundamentals. He didn’t stop there. Khelil also thinks that oil futures markets are getting out of control, reiterates that high oil prices are not in OPEC’s interest, and that speculators should attend Saudi Arabia’s upcoming meeting on surging oil prices. Khelil also said that OPEC has spare capacity of 3 million barrel per day and expects oil prices to weaken in due course, although he did not provide a specific time frame .
Still, while Khelil may argue speculation and a weak dollar account for oil’s rise, that doesn’t mean that supply is outpacing demand. On Wednesday BP (nyse: BP – news – people ) said that the world’s proven oil reserves were mostly unchanged, standing at 1.24 trillion barrels last year, while production fell 0.2%. because it indicates that supply is not rising at the same pace as demand.
The announcement pushed oil prices up $2.15 to $133.46 in morning trading as Wall Street waits for the U.S. Energy Department to release its inventory data at 10:35 a.m. When it did hit U.S. crude leapt $5.49 to $136.80 a barrel immediately after the release, then dropped to $134.66. The Energy Information Administration showed U.S. crude oil stocks fell 4.6 million barrels to 302 million barrels last week.
For the week that ended on June 6, Wall Street thinks oil stockpiles dropped by 1.4 million barrels, according to a survey by Platts, the energy research arm of McGraw-Hill (nyse: MHP – news – people ). For the week ended May 30, crude-oil inventories fell by 4.8 million barrels, or 1.5%, to 306.8 million barrels, which were 11.8% below year-ago levels.
Whether supply/demand dynamics are moving oil, unfettered futures markets, or a weak dollar, the volatility in oil prices indicates the market is just as collectively clueless as various industry and governments about about how much oil should cost.
Last week Jeff Rubin, chief economist and chief strategist at CIBC World Market said: “What we’re staring at is the growing fundamental imbalance between supply and demand. A hot commodity market attracts speculation, but what’s causing what is key here.”
The Associated Press contributed to this article
