Falling oil prices, down nearly 20 percent so far this month, might be just one of the few bits of good news among all the gloom for the global economic recovery, analysts said. At a time when a non-stop barrage of bad news on Europe, debt and growth has roiled financial markets, importing countries can at least be happy that their oil bills are not rising, at least in the short term. Oil prices, which hit nearly $90 at the end of April, have since fallen $18, undercut by fears the European debt crisis will torpedo global economic growth and so demand. At the same time, the crisis has driven the dollar higher, making oil more expensive for those buying it with weaker currencies, which hit demand.
The global economic recovery would benefit from a period of lower oil prices given the growing risk of it falling fall back into recession, the Center for Global Energy Studies (CGES) said on Monday. The Organization of Petroleum Exporting Countries (OPEC) favors oil at around $80 but the “global economic recovery, and with it the long-term health of the oil market, would both benefit from a period of more moderate price aspirations,” London-based CGES said in its latest monthly report. Oil producers may not be so happy but they should feel no real reason to panic—prices are still close to the $70 to $80 favored by OPEC as fair to both sides and high enough to justify investment.
Even after the latest price fall to around $68, oil is still trading way above the $32 per barrel seen in late 2008 after the collapse of US investment bank giant Lehman sparked the global credit crunch. The OPEC is “not yet” concerned by the decline below $70, Kuwaiti Oil Minister Sheikh Ahmad Abdullah al-Sabah said on Tuesday. The Kuwaiti minister, whose country is OPEC’s fifth-largest producer, said the cartel has no plans to hold an emergency meeting to discuss prices.
“We only ask for more compliance” with production quotas, said Sheikh Ahmad, adding that he was hopeful prices would stabilize at between $75 and $85. Calyon’s Christopher Barret said prices around $70 “are close to perfection. While not as ‘beautiful’ as a good $80 could be, they remain largely acceptable to OPEC and are likely not to cause too much harm to the fragile economic recovery.”.
