Oil prices could fall as global demand falters

THE FEAR of a possible US-led invasion of the Middle East is misplaced, according to economist Etienne Le Roux of the Rand Merchant Bank, but has already caused the oil price to rise. "Although this implies upside risks for short-term inflation in SA," he said, "we are not too alarmed by the somewhat higher oil price at this stage." From around US$26 per barrel before the attack, the benchmark Brent oil price pushed above US$30 but then settled at US$28. "This price reversal was primarily in reaction to OPECÕs reassurance to markets of its commitment to maintain "price stability". "We take it to mean that OPEC will act instantly (by raising supply) should the oil price spin out of control. With central banks likely to unite in ensuring sufficient liquidity where necessary, so too is OPEC expected to help calm financial markets." "The horrific events, in our opinion, compound the probability of an already fragile US economy tipping into a short recession with big repercussions for growth globally." With this, according to Le Roux, oil prices (and those of other commodities) could actually fall as global demand falters.