Boosted by better-than-expected US employment figures and growing confidence that the global economy is recovering, the oil price surged beyond $86 a barrel this week to reach its highest level since October 2008, sending the price of petrol at UK pumps back towards record highs.
At last week's biennial International Energy Forum (IEF) of energy ministers in Mexico, Abdalla Salem El-Badri, Secretary General of the Organization of the Petroleum Exporting Countries (OPEC), described an oil price of $70-$80 a barrel as good for both producers and consumers - high enough to promote investment but not so high that it clips demand from large developed economies.
But demand from developed economies has been falling. Energy analysts KBC Energy Economics note that year-on-year oil demand in the six main Organisation for Economic Co-operation and Development markets fell by almost 800,000 barrels per day in February. Most of the drop occurred in Europe, and over 70 per cent of this due to lower demand for gas and diesel oil, hinting at continued weak demand from industrial and commercial sectors.
KBC estimates that global oil demand grew in February for the third consecutive month, with China still the dominant factor. New car sales in China rose by 55 per cent in February following a 116 per cent year-on-year gain in January.
Saudi oil minister Ali al-Naimi agreed that current oil prices were "as close to perfect as possible" but welcomed efforts to curb speculation, blamed for the record oil price spike in 2008. Reducing price volatility was one of the IEF's priorities in Mexico. It welcomed the move in January by the US Commodity Futures Trading Commission (CFTC) to implement position limits on oil futures and options.
But Richard Nolan, oil and gas analyst at broker Daniel Stewart, cautions that too much regulation could have a bearish impact on prices. He points to the ending of quantitative easing and other forms of economic stimulus as likely to reduce liquidity and possibly lead oil prices lower. His overall assessment of demand, supply and monetary policy factors is that $70-$90 is a fair range for the oil price, with current risk to the upside.
