Don't let the experts fool you, the oil price isn't going to fall

Oil supply and demand: Don't let the experts fool you, the oil price isn't going to fall - at Moneyweek.co.uk - the best of the week's international financial media.

As far back as 2001 we were predicting - here at MoneyWeek - that the oil price would go high and stay high. Most experts disagreed with us then. They still do. Last year there was a consensus that, following the war in Iraq, oil prices would fall back from their peak of $35 a barrel to end the year somewhere in the low $20s. Now there is a consensus that, once spring arrives in America, oil prices will fall back to the low $20s from their current level of $33. The consensus was wrong last year and I'm pretty sure it will be wrong again this year.

This isn't just down to the falling dollar. It is a function of soaring demand and capped supply: China, the US and India are all displaying insatiable appetites for oil (Chinese demand rose 10% in 2003 and is forecast to be up a good 6% this year). At the same time, non-Opec supply from the likes of Nigeria and Venezuela is pretty chaotic, Iraqi production continues to be hampered by technological problems and there is increasing evidence of political instability in Saudi Arabia, one of the world's largest producers. Then there is Opec. Generally, the group has been disciplined about controlling supply over the last couple of years and this week's surprise production cut has made it pretty clear to the US that the degree of purchasing power its member countries are prepared to give up in the face of the falling dollar is pretty limited.

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