Global oil prices are likely to be range-bound in the near-term as the decision of the International Energy Agency (IEA) to release 60 million barrels of oil in the coming month will keep a lid on prices moving out of the range, say analysts.
"Experts don't see a sharp upward movement in oil prices from current levels. Greek austerity measures are already priced in. The market seems to have accepted the price of Brent crude at $110 a barrel and the WTI at $90 a barrel," Kate Dourian, Middle East Editor for Platts, a globel energy information provider told Gulf News.
Brent crude steadied near $109 a barrel yesterday on growing optimism that Greece will be able to push through an austerity package, avoiding contagion in Europe.
US crude held near $93 a barrel after industry data showed tighter supply in the world's largest oil consumer.
"A cut in the oil price through increased supply is a much needed stimulus to the global economy. JPMorgan for example estimates that the effective cut in oil prices could add around 0.5 per cent to global growth," wrote Gary Dugan, chief investment officer Private Banking at Emirates NBD, in a research note.
"The fall in the oil price will be particularly beneficial to emerging countries. Countries such as India and China have been under pressure to raise interest rates to choke off inflation pressures.
"The fall in oil prices should reduce the inflation pressure and allow the authorities in India and China to ease off on the tightening of monetary policy," he said.
However, Dugan said it's doubtful that in the long term, oil prices will remain capped at current levels.
"The need to release strategic reserves in order to reduce the price of oil is further evidence of the tightness of the market where limited supply is trying to meet still strong demand growth.
"Bear in mind that a strong oil price has persisted even whilst global growth has been fragile and the emerging countries have been increasing interest rates to slow their economies," said Dugan.
Last month, the Paris-based IEA said that the US would sell 30 million barrels from its Strategic Petroleum Reserve, the largest release ever from the nation's emergency energy stockpile.
The International Energy Agency said its other members will draw down an equal amount in response to the disruption of oil supplies from Libya.
The announcement drove down the cost of the benchmark West Texas Intermediate crude oil by nearly 5 per cent, to $91.02 a barrel.
"In deciding to take this collective action, IEA member countries agreed to make 2 million barrels of oil per day available from their emergency stocks over an initial period of 30 days.
"Leading up to this decision, the IEA has been in close consultation with major producing countries, as well as with key non-IEA importing countries," IEA's executive director Nobuo Tanaka said in an e-mailed statement from the IEA, received by Gulf News.
Last month, the members of the Organisation of Petroleum Exporting Countries (Opec) failed to reach a consensus to increase oil supplies to the global market to curb spiralling crude prices which posed a threat to the nascent global economic recovery after the financial crisis.
Saudi Arabia, Kuwait, the UAE and Qatar wanted to boost actual production by 1.5 million barrels per day to meet Opec's own forecast of higher demand in the second half of the year.
From / Gulf News