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OPEC Sec-Gen Can't Rule Out $80 Oil Spike
Thu Mar 3, 2005 2:53 AM ET


KUWAIT (Reuters) - Oil prices may temporarily spike to $80 a barrel during the next two years in there is a major supply disruption, OPEC's Acting Secretary-General, Adnan Shihab-Eldin, was quoted as saying by a newspaper on Thursday.

"I can stress that the probability that the price of a barrel of crude rises to $80 in the near future is a low probability," Shihab-Eldin told leading Kuwaiti daily al-Qabas in an interview in Vienna.

"However, I can't rule out the rise of a barrel of oil to $80 in the coming two years," he said.

"But, if the price rises to this level for one reason or another (for example a shortage of supplies from a producer nation by one or two million barrels per day), it's not expected that this spike will last long."

Prices around $50 or $60 a barrel, if they continued for two years or more, would increase investment to expand supplies and curtail demand, pushing down prices in the end, he added.

"This is an essential law of economics," Shihab-Eldin noted.

U.S. crude oil rose to a fresh four-month high over $53 per barrel on Wednesday as refinery problems in Texas propelled gasoline up to an all-time peak.

Shihab-Eldin has said that OPEC saw a growing consensus that a $40-50 range for U.S. crude was sustainable, backing up comments by Saudi Oil Minister Ali al-Naimi last week that prices could stay in that range this year.

STRUCTURAL CHANGES IN OIL MARKETS

Shihab-Eldin also told al-Qabas that it was in the best interests of the OPEC oil producers cartel and the rest of the world that there be no big or sudden jumps in price levels but instead a balanced and gradual rise.

"It's clear that there are some structural changes in oil markets that took place in 2004 which led prices to rise," Shihab-Eldin said.

The most important of these changes is rising demand for oil in China and Asia, which accounted for nearly two thirds of the annual increase, and also a deceleration in the production rise from non-OPEC oil producing nations, he said.

This, he said, has prompted the Organization of the Petroleum Exporting Countries to temporarily set aside its price band of $22 to $28 a barrel "until it finishes studying the structural changes in coming months and specifying a new price band."

OPEC's reference basket of seven crudes last stood at $46.17.

Shihab-Eldin said consumers in many industrialized nations pay for refined oil products, such as petrol, prices that translated into much more than the equivalent of $80 per barrel for crude oil.

"The price reaches more than 200 euros ($265) per barrel in some European countries," he said.

"This price is subject to the tax disparity between the United States and Canada on the one hand and some European nations on the other hand, where tax on oil products rises to about 80 percent."

http://today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2005-03-03T075346Z_01_N...