The rising crude oil prices which had spooked the global equity markets over the last six months have finally cooled off for the time being.From a record-high $147.27 on July 11, the New York futures contract slid to about $115 on Friday, losing almost 22 per cent in the course of four weeks.
The phenomenal rise in crude prices has led to a virtual slow down in the global economic growth. Prices of other commodities rose in tandem with crude giving rise to spiraling inflation.
Now with the crude cooling off a bit most other commodity prices, which were driven higher by the oil market surge, have fallen from their peaks: an ounce of gold has dropped to 800 dollars from 1,000; farm commodity prices are between 25 and 40 per cent lower and gasoline prices have dropped about 6.0 per cent.
But many analysts still think that the worst is not over. Some experts think that prices of crude which have plunged $32 could rebound, for example, over the Iranian nuclear crisis.
The slowdown in economic growth has a significant impact on energy consumption, analysts say.
Case in point: US drivers, known as huge consumers of gasoline, drove a third less in May compared with a year ago. Motor fuel consumption fell more than 2.0 per cent.
This trend is expected to extend to the emerging market countries where the increasing weakening of fuel subsidies is going to force consumers to fill up their tanks less.
By contrast, petroleum inventories which had slumped early in the year, are rebuilding. The world's largest energy consumer, the United States, has witnessed an increase in its crude oil reserves in recent weeks.
"When investors realised how much demand was increasing, they bid up prices. and when they realised how much inflation was increasing ... they bid up prices further," said Daniel Katenberg, an analyst at Oppenheimer.
"Now growth rates are declining throughout the world, the market overreacts to that, too," he said.
Swept up in the record run-up of oil prices, analysts had revised upward their 2008 price forecasts, with some talking about $200 a barrel in the next six months.
Those scenarios, disastrous for the world economy, have been replaced by a more modest range: between $80 and $110 a barrel at the end of the year.
But a return to the forefront of problems with energy supplies could once again send prices skyward, analysts warn.
They point notably to the escalating tensions between the United States and Iran over Tehran's nuclear program, which could threaten overstretched global supplies, Antoine Halff of Newedge Group says.
Iran, the second-largest oil producer in the Organisation of the Petroleum Exporting Countries, warned that it would shut the Strait of Hormuz, were 40 per cent of the world's oil exports transit, if its interests are threatened.
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