Deutsche Bank Warns Oil May Soar to Dollars-75 a Barrel

BULK buying by speculators and concern over further refinery problems in the US will push the oil price through the dollars75- per-barrel barrier by the year end, Deutsche Bank economists have warned.

Crude oil prices rose to a record on Friday for a fifth straight day, reaching dollars67 a barrel in New York.

“The options market sees a one-in-three chance of oil prices moving above dollars75 per barrel before December, compared to a one- in-20 chance at the start of the year, ” said Michael Lewis, global head of commodities research at Deutsche Bank in a report published on Friday.

Higher oil prices shaved about a half-percentage point off economic growth in 2004 and may reduce it by 0.75per cent this year, Federal Reserve Chairman Alan Greenspan said in letter to Congress issued last week.

If oil were to stay at such levels it could shave at least 1per cent off global economic growth for 2006, a year for which the IMF is currently forecasting global growth of 4.4per cent.

But Ann-Louise Hittle, Boston-based analyst with Wood Mackenzie, believes the current rising oil price is based on a speculative bubble from which consumers are likely to suffer the most.

She told the Sunday Herald:

“The current high price is definitely being driven by speculators. There is no shortage out there. There are fears of a shortage but there is no shortage.

“This is being driven by private equity groups and hedge funds, who have found it easier to push up the price because industrial consumers are backing off from hedging the price, because they are detecting more strength on the up-side.”

Hittle, head of macro-energy at Wood Mackenzie, draws parallels with the speculative stockmarket bubble of 19992000. “I get the same feeling that it is consumers who will end up paying the price. It’s really tough for all of us who look at reality, ” she said.

She added that supplies will come on stream from Angola, Norway, Brazil, the Caspian Sea, Canada and the US Gulf of Mexico in the fourth quarter of 2005. “But I’m not sure if that’s going to be enough to dampen this speculative fever, ” she said.

Hittle condemned US media including the Wall Street Journal for being in a “frenzy” and playing a part in “drumming up the fear”.

Andrew McLaughlin, chief economist at the Royal Bank of Scotland, said the UK is much better equipped to handle the high oil price than at the time of previous oil shocks of 1974 and 1980, because the economy is now much less energy intensive. Oil imports represented 3per cent of the GDP of the OECD countries in 1980, but just 1per cent today.