TEHRAN (Dow Jones Newswires), June 27, 2008
Both oil producers and consumers are worried about a potential shortage of oil in the years ahead as demand outpaces supply growth, and it is likely prices will go even higher unless the problem of excess liquidity in the U.S. economy is resolved, a top official from Iran's national oil company said Friday.
"If there is any panic in production, and it is not due to a shortage today, it is for the future," Hojjatollah Ghanimifard, executive director for international affairs at the National Iranian Oil Co., told Dow Jones Newswires.
"It looks like the pace of production in oil-producing countries cannot keep up with the pace of demand increases," Ghanimifard said. "Everyone is worried about the shortage to come."
Ghanimifard said current high oil prices - which hit a record $142 a barrel in Friday morning trading in London - were rooted in problems in the U.S. economy, including rising inflation, slow growth and paltry returns in other investments like stocks and bonds. That is driving investors to plow their money into oil, pushing up demand and prices, he said.
"Everybody knows that the main reason right now is due to the problems that the economy of the U.S. is faced with," Ghanimifard said, adding that prices won't come down "as long as the problem of the U.S. economy isn't solved."
"Due to this huge amount of money liquidity and the amounts of oil that are being exchanged, you will be witnessing prices maybe even higher than now," he added. Ghanimifard, who attended a high-profile meeting of oil producers and consumers in Saudi Arabia last weekend, said some oil-consuming countries are starting to see eye-to-eye with producers from the Organization of Petroleum Exporting Countries, who have insisted that there is enough oil on the market and that adjusting production levels will not influence oil prices. "(With) some of the top officials of consuming countries, especially from Europe, you could see that the tone of their speeches and the tone of their language has been different ... you could see that they have recognize(d) that the state of the market is not just due to OPEC decisions," Ghanimifard said.
Ghanimifard said that many officials in their speeches at the meeting in Jeddah referred to concerns about diminishing spare capacity - the extra cushion of oil-producing capacity that can be brought quickly on line if necessary. Officials noted that sanctions during the past decade against oil-producing countries, such as Iran, Iraq and Libya, crimped investment needed to boost supplies, and the effects are taking their toll now, according to Ghanimifard.
Saudi Arabia in the last two months has announced it will boost output by 500,000 barrels a day to reach 9.7 million barrels a day by July, though that has done little to tame prices. Libya, Algeria and some other OPEC members have questioned Saudi Arabia's move, while in recent days the head of Libya's oil policy has suggested that decreasing output may, in fact, be warranted.
"I think that at the moment none of the statements regarding the decrease of the production or the increase of the production is going to affect the market right away," said Ghanimifard, noting the impact of any change in output would take at least a couple weeks to be felt by the market due to shipping times.
Such statements have a "psychological effect and have nothing to do with the reality of the market," he said.
Copyright (c) 2008 Dow Jones & Company, Inc.