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International Herald Tribune: OPEC raises forecast for oil demand

By Carter Dougherty Published: October 15, 2007

FRANKFURT: The price of a barrel of oil crashed through $85 on Monday for the first time as leading oil exporters said it was increasingly likely that the United States would dodge a recession – ensuring that U.S. demand would help keep the cost of crude high.

The Organization of Petroleum Exporting Countries raised its forecast for oil demand during the coming winter in the northern hemisphere. It predicted in its monthly oil market report that demand would hit 31.4 million barrels a day in the fourth quarter, up 100,000 barrels from a previous estimate, and rise early next year as well.

Despite a deteriorating housing market in the United States that has roiled global credit markets, OPEC emphasized that other economic data, notably a recent report showing that employment continued to expand, suggested that a recession was not imminent.

It also highlighted the positive effects of the weaker dollar, which helps U.S. companies sell more abroad and makes imports more expensive.

A recent interest rate cut by the U.S. Federal Reserve “has not eliminated the risks of an economic slowdown,” OPEC said in its October market report, adding, “It now appears more than likely that the U.S. economy could weather the financial crisis without a sharp downturn in economic activity.”

In afternoon trading in New York, oil was at $85.55 a barrel, up $1.86.

The organization’s report, coming at a time when oil prices were already near record highs, appeared to shrug off the one factor – a significant dip in U.S. growth – that could have halted the rise in energy costs. For much of the past five years, rising energy demand in China and India has been a powerful driver for prices as well.

Oil prices have also gyrated wildly over geopolitical tensions related to Iraq, Iran’s nuclear program and unrest in Nigeria’s oil-producing regions. Natural disasters have also kept energy analysts guessing.

A credit crunch that originated with the U.S. mortgage industry in August threw an additional wrench into the works, hitting stocks and threatening the wider economy with a slowdown driven by more tightfisted lending. Now, with equity markets recovering and tentative signs that pressure on lenders is easing, pre-crisis patterns are emerging, analysts said.

“I think the demand picture looks fairly good,” said Francisco Blanch, head of global commodity research at Merrill Lynch, Reuters reported. “I don’t think you have had a big effect of the credit crisis on oil or for that matter any commodity.”

Gold prices hit a 28-year high on Monday as well, with prices of other precious metals also holding firm. Rising commodity prices have not been limited to any category, however, with agricultural products like milk becoming notably more expensive in recent months. (Page 25)

Overall, OPEC painted a broadly sunny picture of global economic growth for next year, with brisk expansion in emerging markets in Asia helping to offset cooler conditions in the United States and, to a lesser extent, in Europe. It is predicting 4.9 percent global growth for next year.

“Signs of a slowdown in the U.S. and euro zone in both manufacturing and service sectors contrast with continued strength in Asia,” the report said

Oil’s march upward has been felt differently in different parts of the world. As the U.S. dollar has declined to record lows against a broad range of currencies, including the euro, other countries have been able to shrug off the effects on their own growth.

Despite rising prices, OPEC appeared to show little inclination to move toward increasing production, though it said the organization would reassess the outlook in the coming months. Its members will meet in Abu Dhabi on Dec. 5, while the OPEC heads of state have planned a summit meeting in mid-November in Saudi Arabia’s capital, Riyadh.

“Over all, the current supply and demand forecasts predict that the market will be fundamentally balanced over coming quarters,” OPEC said in the report.

Kazakh fine for Chevron unit

Chevron’s venture in Kazakhstan was fined 37 billion tenge, or $307 million, over a government claim that it had damaged the environment by maintaining “excessive” stockpiles of sulfur from oil production, Bloomberg News reported Monday from Almaty.

A Kazakh regional court accepted the Environment Ministry’s allegation and halved the penalty from the 74.4 billion tenge sought in July from the TengizChevroil venture, Nursapa Primashev, chief justice of the court in the city of Atyrau, said by telephone.

Maria Karazhigitova, a spokeswoman for TengizChevroil, said by telephone: “We will appeal to the upper court. The venture does not agree with the decision.” TengizChevroil is the biggest oil exporter in Kazakhstan.

Russia and Kazakhstan, the biggest oil producers among the former Soviet republics, are exerting pressure on foreign energy companies. The Kashagan project that is run by Eni of Italy is fending off Kazakh government claims for a greater cut of profit at a time of record-high oil prices.

The Russian government ordered action against a Shell-run operation that eventually prompted Western companies to sell a significant stake of the project to Gazprom.

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