Economic Expert Predicts Oil Price Falls to $80-$85 p/b

A: There are three factors which decide the oil price. It is not just one factor. You just mentioned one of these factors. Incidentally, what you just said is not the most but the least important factor. The most important reason is the supply and demand for oil which has direct connection with the power or output of the oil producing countries or the supply and consumption of consumer countries, which is called the demanding party.

Therefore, the first and most important factor deciding the oil price and its fluctuations in the world is supply and demand. The second factor is the rise or fall of the US dollar which reversely affects the oil price. That is if the price of USD goes up the oil price goes down and the vice versa. The third cause is political, namely international tensions the most important of which over the past 2-3 years has been the Iranian nuclear standoff with the United States which has somehow subsided in recent weeks.

As a result, as far as the first factor (supply & demand) is concerned, the economic growth of the world has dropped by 1.5 to 2 percent on the average. The growth rate for the next year is predicted not to exceed 3.5 percent on the average. This would have a great impact on bringing the oil consumption to zero. I think the oil consumption in the world now is zero. This is what concerns demand. On the supply part, due to oil price rise production capacity has reached its peak in the world. Out of their concern for rising oil prices, the consumer countries have tried to seriously check consumption. This is particularly so in China where we witnessed a growth in the price of fuel in June. This was important for China to reduce its oil consumption. The case elsewhere in the world was similar. This was also predictable. When the oil price or the price of a commodity goes up sharply its consumption goes down.

Therefore, supply has increased and demand decreased due to high prices and a drop in global economic growth. This is the most important factor. The second factor is that the USD has gained considerably against euro. It is not only the price of oil that is falling. The prices of steel as well as foodstuffs too have dropped over the past month. The third factor is that the war in the Caucasus was far from the oil centers. The center for production and supply of oil is the Persian Gulf which has been calmer compared with a month before. For the same reason, all the three factors, in my opinion have been helpful in the oil price cuts. My forecast is that the oil price will drop by about 15 to 20 percent more.

 

A: As I said, this shows that the oil prices are psychologically in a downward position. In other words, speculation or stock jobbing is not happening for oil anymore. Oil doe not have the past attraction for investment more than its real consumption level. Let’s not forget that the United States in the recent months stocked 1m to 2m barrels of oil daily. But it now seems that nothing is being added to these reserves. The demand for oil, which is the most important factor in its price rise, has considerably dropped.

 

A: If these three factors continue to be there, yes. These three factors are so complicated that the forecasts on rise or fall of the oil prices have never been materialized and if they have it has been coincidental. I mean if the current situation persists, the oil price could reach $80 to $85.

 

A: That’s right! The cold season would not raise oil consumption very much. Meanwhile, the current global reserves would make up for seasonal fluctuations. The factor that forced the oil price to climb to $150 was another thing. As you know, the oil price reached its peak in mid-summer and this had nothing to do with winter. That is to say that we have already lost one third of the oil price in the peak of summertime. Over the past three months, the further we approached the winter the cheaper the oil price became. Generally speaking, winter or the factor of weather would only affect the oil price by 5% tops.

 

A: Yes: Both the Iranian nuclear case as well as any unrest in the Persian Gulf. Also supply and demand and a more complicated factor called the value of the USD. If the dollar gets weaker against the euro, the price of oil will go up again.

 

A: The impact would be minor and transient. I do not believe there is an organization called OPEC when it comes to output cut. OPEC member states have never been united in cutting production. I don’t think this would change in the future. The interests of the OPEC members are not identical when it comes to production cut or output rise or the fall and rise in oil prices. In other words, the interests of Saudi Arabia, the UAE and Kuwait are different from those of Iran, Venezuela and other member states. The first group may seek their interests in lower oil prices rather than trying to keep the prices high. Disputes between Iran and Saudi Arabia over oil output and price have a record of four decades.

 

A: Yes. But even if there were no tensions between the two countries, they usually have no agreement on the question of oil.

 

A: As far as oil is concerned, Saudi Arabia always favors higher output because it has production surplus. On the contrary, Iran has always opposed more production because we have no output surplus. In the meanwhile, our record concerning foreign exchange reserves has been worst. We also are the most vulnerable among the OPEC members vis-à-vis falling oil prices. For the same reason, we always want less output. But countries like Saudi Arabia and Kuwait have big foreign exchange reserves and would face no immediate budget deficit even if oil prices go down.