KEY POINTS:
A rapidly cooling global economy and an increase in supply from Opec states will see the price of oil ease next year.
In its latest monthly market report, the International Energy Agency looks to a "potential easing in fundamentals for the second half of 2008 and into 2009,
before a renewed tightening thereafter", a trend that seemed to be foreshadowed in oil trading yesterday when the price of a barrel of crude dropped again, to US$113.35 a barrel, almost US$35 below the record US$147.27 reached in July.
For now, at least, fears of a US$250 barrel can be set aside.
The IEA saw demand in the United States and Europe as likely to be soft: "High prices are beginning to play a central role in determining demand, at least for the OECD countries."
It also suggests that the long-term trend towards more energy-efficient economies in the West will accelerate.
"Even if retail prices ease, it seems unlikely that motorists who have purchased smaller cars will revert to gas-guzzling vehicles."
Signs of an early end to hostilities in Georgia have also eased nerves, as has the rise of the US dollar, in which oil has traditionally been priced.
Demand growth in emerging countries, however, remains strong, with Chinese consumption topping eight million barrels a day for the first time in June to reach 8.3 million barrels.
On the supply side, production, especially from Opec, has jumped. In July the cartel pumped about 32.8 million barrels a day, a record, thanks to increases in supply from Saudi Arabia and Iran.
The IEA sees more to come: "There are encouraging signs for crude capacity, with summer field start-ups in Nigeria and Angola, and a reportedly imminent capacity boost in Saudi Arabia, which could raise Opec spare capacity from July's very low level of 1.5 million barrels per day."
The agency asked: "Is this really the tipping point for the market that some pundits have identified?"
But it warned that even at current levels, oil remains expensive, and that even if "any fall from recent peaks is welcome", a price close to "US$115 to US$120 a barrel remains high by any measure, sustaining inflationary concerns, not least in developing importer countries."
Opec will review its production levels on September 9 in Vienna.
- INDEPENDENT