Climate Change And Oil Prices

7 Feb 2007 (TODAY)

Fuel rates could seesaw as global warming spreads

NEW YORK - Climate change, by disrupting current weather patterns, could
play ever greater havoc with the zigzags in oil prices, such as the price
plunge seen in early January, market analysts said.

The Intergovernmental Panel on Climate Change (IPCC) - the United Nation's
top scientific authority on global warming - delivered its starkest
warning yet on global warming on Friday. It said that fossil fuel
pollution would raise temperatures this century, worsen floods, droughts
and hurricanes, melt polar ice and damage the climate system for a
thousand years to come.

The warning cannot be ignored by businesses or the financial world, and
particularly those markets that are climate-sensitive, such as oil.

Some analysts have already pointed a finger at climate change last month
as oil prices tumbled by 18 per cent in under three weeks when unusually
high temperatures in the northern hemisphere reduced demand for heating
oil.

"Assuming that the recent weather patterns are in fact caused by global
warming to some extent, yes we've already seen the impact of it last year
on natural gas, because we have the highest inventories ever, so we had
less consumption; and this year on oil prices," said BMO Capital Markets
analyst Bart Melek.

According to Natixis Bank analysts, if climate change lasts, and few
scientists see it as passing, it will become an all-season wild card.

Next summer, for example, with air conditioners roaring and travel season
under way, greater pressure should send oil prices soaring, they said in a
report. In the fall, they noted, there will be concerns about major storms
and hurricanes that can disrupt supply networks, for example, in the Gulf
of Mexico.

The IPCC forecast greater intensity in North Atlantic hurricane activity
as water temperatures rise. Investors have already had a taste of this. In
2005, when Hurricane Katrina ravaged New Orleans and other points along
the Gulf coast, it damaged many US oil platforms and helped send oil
prices surging above US$70 a barrel for the first time since the 1970s.

Erratic weather "could add to a lot of volatility because of this
fluctuation of the norms. If weather is erratic, so will be demand and so
will be prices," said Mr Melek, joking that that would be "a trader's
dream".

The greatest impact of climate change could be felt 10 to 20 years down
the line when most major energy consuming nations have moved on to
alternative energy sources, said Mr James Williams of WTRG Energy. - AFP