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Will global oil prices head upward next year?

This year's oil market witnessed spiral price hikes as global crude supplies did not keep pace with growing demand. It had a great impact on the global economy and people's daily life. Will global oil prices head upward next year? Economists and market analysts have offered varying assessments on the trend in oil prices for next year.

This year's oil market witnessed spiral price hikes as global crude supplies did not keep pace with growing demand. It had a great impact on the global economy and people's daily life.

Will global oil prices head upward next year? Economists and market analysts have offered varying assessments on the trend in oil prices for next year.

The crude prices started to soar early this year as cold spells fired up furnaces and boosted demand for heating fuels in Europe and the United States. Light crude futures topped 50 U.S. dollars a barrel in March on the New York Mercantile Exchange, and hit a record high of 56.46 dollars on March 16.

The prices were pushed further above 60 dollars in late June in early days of the summer when consumption peaks, and surged over 65 dollars in early August following the death of Saudi Arabian King Fahd Ibn Abdul-Aziz and the devastating hurricanes that battered production facilities along the coast of the Mexico Gulf.

The prices hit an astonishing all-time record of 70.85 dollars on Aug 29.

Light crude futures averaged 63.28 dollars on the New York Mercantile Exchange in the third quarter, 44.4 percent up from a year earlier. In London, Brent crude futures also rose by 52.1 percent to 61.57 dollars a barrel.

Thanks to the release of 60 million barrels of oil inventories by the International Energy Agency (IEA), the crude prices began to fall and the downtrend continued in November. But the prices rebounded to top 59 dollars per barrel in December as a chill gripped parts of the United States and lifted natural gas prices.

Economists and market analysts now were divided over the price trend next year. Some said it would remain volatile but would be unlikely to slide below 40 dollars per barrel, while others expected it to continue edging up to be hovering above 60 dollars.

On the supply side, several major producers in the world are already pumping near full tilt or even beginning to scale down production due to dwindling reserves as well as political and economic factors. Iraq, Russia, Venezuela and Nigeria are expected to produce less crude this year and the trend is also lingering in oil fields in Europe and North America.

Boone Pickens, CEO of BP Capital, also one of the oil market's most prominent bulls, believed crude supplies may hover at the present level as the development of new oil fields takes a long time and global production is near its peak.

Demand will pick up speed if the global economy resumes the trend of fast growth, which will push oil prices up again, Pickens said.

The Energy Information Administration of the U.S. Energy Department said in a report in November that oil prices would stay high, averaging 64 to 65 dollars per barrel next year as global oil output and production capacity are unlikely to rise remarkably in the near term.

Limited refinery capacity have also strained oil supplies. While global demand for oil grew by 2.4 percent and 3.2 percent in2003 and 2004, refinery capacity rose only by 0.4 percent and 0.3 percent respectively.

"Oil prices will keep rising over the next two decades unless the oil-rich nations of the Middle East and North Africa substantially increase investments in their energy sectors, "IEA chief economist Fatih Birol.

Oil prices on the international markets would hit new highs again in the future unless the issue of refining bottlenecks is resolved, Birol said.

But statistics from the French Petroleum Institute showed global investment in the oil industry reached 150 billion dollars last year and part of it will be used to raise production capacity in 2006.

On the demand side, the slowdown in world economic growth will curtail demand for oil and the uptrend in oil prices would not be maintained, other experts believed.

Against the backdrop of skyrocketing oil prices, the Global Insight Inc. lowered its forecast for 2006 global economic growth to 3.2 percent.

Derek Burleton, a senior economist with TDBank Financial Group, said a slowdown in U.S. GDP growth from current 3.5 percent to just 2 percent in the first six months next year will take a major bite out of the global expansion.

The U.S. Energy Department and the Organization of the Petroleum Exporting Countries also predicted last month that global demand for oil will slow down to 1.8 percent in 2006, far below the 3.2 percent last year.

The view was echoed by Frederic Lasserre, head of French bank Societe Generale commodities research.

"We think the main explanation of this demand slowdown is purely and simply economic growth which is losing momentum almost everywhere," said Lasserre.

According to the French bank's prediction, crude oil prices are expected to average 52 dollars a barrel in 2006 from a projected 55.98 dollars this year.

But IEA chief economist Fatih Birol played down the possibility of prices plummeting in 2006.

And a senior energy analyst with Merrill Lynch Securities believed that violent fluctuations in global oil prices could take place if a key link in the chain of supply snapped.

Source : Xinhuanet agency