Oil prices expected to fall below $45

Some experts claim prices will decline even further.

In an interview with Forbes magazine, Michael C. Lynch, president of Strategic Energy & Economic Research in Amherst, Massachusetts, said prices would regress.

Lynch, known for his optimistic analysis in energy issues, asserted that new supplies would amply meet growing demand.

He did not expect price hikes even if an economic embargo was imposed on Iran, which produces 3.75 million barrel per day (bpd).

Lynch said oil disruptions, nuclear threats, wars, terrorism, tornados and pipeline decay affected oil prices with a $20-per barrel risk premium.

According to Lynch, prices might fall to $25 per barrel if risks were eliminated.

However, the American economist expected oil prices to settle at $45 a barrel.

Lynch said price hikes from $30 to $80 began four years ago when Venezuelan oil companies went on strike.

Because of the strike, Venezuela's 3.25 million bpd-output fell by one million barrels and subsequent policies failed to restore the output.

He recalled that the two million bpd average in Iraqi output was halved due to the U.S. invasion and stressed that the growth in Chinese demand had significant influence on price hikes.

In 2004, China increased its oil consumption by one million bpd to 7.4 million.

Lynch stated that oil supplies shrank by four percent when Nigeria cut production by 500,000 bpd due to political unrest in the country.

Apart from Saudi Arabia, no producer had raised oil production in mid-2005.

The 700,000 bpd reduction due to Hurricanes Katrina and Rita led the markets to fall for pessimistic scenarios.

"These were all one-time transient events that can be fixed or adjusted to," Lynch said.

The magazine stressed that Apache Energy launched new recovery technologies to revive the diminishing oil basin in the UK’s North Sea fields and recalled that one million bpd was pumped from the Azeri basin through the Baku-Tbilisi-Ceyhan oil pipeline, a $10 billion-project.

The magazine cited the possibility that 500,000 bpd could be pumped starting from next year and new production in Brazilian deep-sea field and the Algerian basin could add hundreds of thousands bpd.

Sohbet Karpuz, an expert on global oil markets, attributed the decrease in oil prices to a selling wave triggered by global hedge funds ahead of the U.S. midterm elections.

"High stocks, above-average weather conditions in the United States and predictions that the Organization of Petroleum Exporting Countries would not reduce output had impact on price decreases."

Karpuz claimed that the supply-demand balance was made insignificant by market resistance to negative developments in supply.

"In fact, the recent oil market is like a malfunctioning ship that is being directed by captains fighting with each other. However, prices are expected to rise over $60." Zaman