Oil prices are out of synch with demand
Weak dollar has helped inflate oil prices
Tom Stundza -- Purchasing, 11/15/2009 10:33:28 PM
There's a "disconnection" between demand for crude oil and the current price, according to Exxon Mobil CEO Rex Tillerson. Simply stated, oil prices aren't reflecting demand fundamentals, according to a Bloomberg report of an energy round table in Singapore as part of last week's Asia-Pacific Economic Cooperation meeting.
"There is clearly, and has been in my view for some time, somewhat of a disconnection in the fundamentals of supply and demand and the current day market price, and I can't really explain that to you," Tillerson says. He tells the Dow Jones News Service: "I would say the behavior of the price is attributable maybe to the same kind of factors as when oil prices grew to $147, which I never understood."
Crude oil was trading in New York at $76/barrel last Friday. Tillerson says the price of oil would probably be $55-$56 if the dollar hadn't depreciated against the Euro during the last 18 months. "You could say oil is about $20 to $25 a barrel higher simply it's priced in dollars and there's a weak dollar," he tells the roundtable.
Oil, in fact, has gained more than 70% in price this year on the New York Mercantile Exchange on signs that the global economic recovery will spur fuel demand. The International Energy Agency last week increased its forecast for 2010 global oil demand as the pace of economic recovery in Asia and the Middle East picks up.
However, benchmark crude oil slid Friday to its lowest price in a month as investors started to pay more attention to a yearlong slump in American energy demand, Bloomberg reports.
Energy Information Administration data last week shows that refiners are operating at the lowest levels ever-except for years when hurricanes disrupted operations in the Gulf of Mexico.
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