Have Crude Oil Prices Hit a Bottom?

Oil analysts are anticipating increased demand throughout the world that may outpace the development of new oil deposits. As a result, oil analysts are raising their price estimates for 2007. According to the median forecast of 29 analysts surveyed by Bloomberg News in September, crude oil will average $64 a barrel in New York in 2007. The previous estimation at the end of the second quarter was $62.

Analysts are expecting a very tight market continuing next year. Barclays Capital in London expects oil to average $76.70 a barrel in 2007, the highest forecast in the survey. Raymond James Financial Inc.’s previous forecast for 2007 was $58. They are now forecasting $70 a barrel for 2007. A fairly strong global growth is expected, without much expansion in the supply capacity.

On July 14, Benchmark NYMEX oil futures touched a record $78.40 a barrel on the New York Mercantile Exchange. There were concerns that fighting between Israel and Hezbollah would spread through the Middle East. It is well known that Middle East is the source of almost a third of the world’s oil. Prices fell only after the fighting ended. Passing of the Gulf of Mexico storm season without a repeat of last year’s hurricanes, also had a positive impact on the oil prices.

According to the US Energy Department, oil consumption worldwide climbed 9% to an average of 83.8 million barrels a day between 2000 and 2005. On the other hand, global oil supply rose to 84.5 million barrels, with an increase of 8.6%.

NYMEX oil prices were less than $20 a barrel at the end of 2001. Producers have failed to generate new supplies fast enough to keep pace with rising demand. This has been the main reason for climb in oil prices. Analysts are expecting the trend to continue. So far, the crude oil has averaged $68.21 a barrel, which is higher than any prior year.