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Global Warming Could Cool Oil Prices In Long Run

Oil prices were weighed down this week by forecasts of warmer temperatures in the United States, which could lead to a potential drop in demand for heating fuel.
by Perrine Faye
London (AFP) Oct 31, 2006
Climate change, the subject of a key independent report published this week, could push oil prices lower in the long term as warmer air reduces demand for heating fuel, analysts said on Tuesday. They added that attempts to combat global warming, particularly by taxing certain forms of transport at a higher rate, could also dampen demand for gasoline or petrol, jet fuel -- and crude oil.

The Stern Report, released this week with the backing of British Prime Minister Tony Blair, found that unchecked global warming could destroy five-to-20 percent of global gross domestic product every year unless economic measures were quickly taken.

"Over a longer period of time, global warming could potentially reduce consumption and have an (oil) market impact," said Global Insight analyst Simon Wardell.

He added: "In theory, you could have warmer weather, which might reduce demand for the winter months.

"Probably more significant is the fact that there may be some moves to try and reduce carbon emissions, by taxing fuels and jet travels for example, which may lead to reduce actual consumption or at least slow demand growth.

However, Wardell said the oil market impact would be "a long way off".

"I'm not sure it's going to have a huge impact in the next 15 or 20 years," he added.

Former World Bank chief economist Sir Nicholas Stern, who headed the British report, singled out the United States, China and India as powerhouse nations whose backing is crucial for a global solution, though he said rich countries should pay more than poor ones in efforts to reduce carbon emissions.

Stern warned of potentially "disastrous" consequences unless action was taken urgently, adding that the world could not spare the five years it took to negotiate the Kyoto protocol.

The United States -- the biggest energy consuming nation in the world -- is the worst polluter, responsible for around 25 percent of total greenhouse gas emissions worldwide.

The 1997 Kyoto agreement to reduce greenhouse gases stalled after the United States failed to ratify it, with President George W. Bush claiming it would handicap US industry.

Beijing and New Delhi are the second and fourth largest producers of carbon dioxide emissions in the world after the US.

Meanwhile, oil prices were weighed down this week by forecasts of warmer temperatures in the United States, which could lead to a potential drop in demand for heating fuel.

The crude oil market is cyclical by nature and traditionally focuses on colder temperatures ahead of the forthcoming northern hemisphere winter.

Heating oil demand normally hits a peak during the winter months and puts energy prices under pressure.

"In the near-term, what will drive the oil market is what the weather is going to be like during the northern hemisphere (winter) and impacted by the broader global economic outlook," added Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

Source: Agence France-Presse

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