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UPI Market Update: The End Of Cheap Oil?

"Oil prices are being kept high by a combination of ongoing demand growth, tight upstream and refining spare capacity, and fears of disruption."

Washington (UPI) Aug 24, 2005
Crude prices are unlikely to fall below $50 per barrel in 2006, the Center for Global Energy Studies, or CGES, said Tuesday in its latest monthly oil report.

The report forecasts that prices may continue to hover over $60 per barrel, until at least the second quarter of 2006. Investment banks predict oil prices may top $75 by the end of 2005.

"Unless both upstream and downstream capacity constraints ease, global economic growth slows dramatically, or tensions in oil producing countries ease, there is little prospect of oil prices falling far either this year or next," the London-based CGES reported.

"Oil prices are being kept high by a combination of ongoing demand growth, tight upstream and refining spare capacity, and fears of disruption."

Although OPEC production capacity is slowly increasing with the commissioning of new fields in Iran, Nigeria and North Africa, non-OPEC producers are offsetting total global production with their underperformance this year.

Russian production stagnated in the first half of 2005 causing a slowdown. Industry experts expected non-OPEC output to grow by only 400,000 bpd in 2005.

Deutsche Bundesbank, Germany's central bank, said in its August report that rising oil prices are a major risk to the global economy. If Iran reduces its crude exports, prices could soar and may fuel inflation in oil importing countries, so as to threaten global economic growth.

Although industry experts produce different short-term and long-term forecasts for the global oil market, all analysts can agree that prices will move upward.

Closing oil prices, August 24, 3 p.m. London
Brent crude oil: $65.05
West Texas intermediate crude oil: $66.11

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