Unclear what’s exactly driving oil prices

Analysis

The International Monetary Fund said on Thursday it was unclear what was fueling record oil prices, whether it was rising demand, speculative buying or a sharp fall in the dollar.

“It is not so clear how much of this has been driven by an increase in demand or whether it is the result of either speculation or weakening of the dollar,” International Monetary Fund spokesman Masood Ahmed told a regular news briefing. US oil hit a new record of $105.97 a barrel on Thursday, a day after the Organization of Petroleum Exporting Countries decided to hold production at current levels despite calls from the United States for more oil. However, profit-taking in the market brought prices lower with crude oil trading about $1.36 lower at $103.16 a barrel in the US while London Brent crude fell $1.12 to $100.52 a barrel.

The IMF has long held the view that rising global oil prices has been driven by increasing demand, especially from emerging economies like China, and therefore would not have much of an impact on global economic growth. “If we do anticipate -- as we do -- a slowing down in the world economy in the coming year then that shift has an impact in terms of moderating the demand for oil, therefore the price of oil,” Ahmed said. Asked whether the IMF believed oil prices would stay high, Ahmed said: “There isn’t a huge amount of spare capacity and at the same time there is a moderation in demand and that should have an impact on prices.” (Reuters)

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