By Sreekumar Raghavan It is often difficult to guage whether price of a commodity reflects the underlying fundamentals or reflects the mood of investors in financial markets either in terms of risk aversion or increased risk appetite.

Now apart from analysts, big-wigs like Mukesh Ambani whose Reliance Industries Ltd has substantial stake in oil and petroleum industry have joined the fray. It is still a mystery why he predicted global crude oil prices to touch the three-digit mark soon. And the reason he gave: The decline in refining growth and sluggish market would drive the price increase. Well, it could happen the other say also as a decline in refining growth and sluggish market could lead to sustained weakness in crude oil prices.

On the other hand, Pierre Lorinet, Chief Financial Officer of Trafigura was quoted by Reuters as saying that until recently energy prices did not reflect fundamentals and was driven more by investment demand and risk appetite. The Europe's sovereign debt crisis has led to an outlflow of funds from most assets and hence the decline in oil prices to below $70 per barrel. Trafigura is the world's third-largest independent oil trader.

While the recent decline in crude has brought prices more in line with demand-supply fundamentals, it would take longer than expected for physical fuel demand to recover, Pierre Lorinet was quoted as saying. And contrary to most market expectations, the recovery in physical oil demand will last longer, he added.

The International Energy Agency's forecast this month also lends credence to what Trafigura predicts. IEA has trimmed its 2010 global oil demand growth forecast by 50,000 barrels per day (bpd) in its monthly report. It still expects a 1.62 million bpd increase in demand this year. Short-term crude floating storage levels continued to rise to 81 million barrels in April, from 65 million barrels in March, reflecting a substantial glut, IEA data showed.

Meanwhile, Iran which has the second largest oil and natural gas reserves, has seen its production capacity reduced by atleast 300,000 barrels per day, depriving the country of billions of dollars of revenues, according to Financial Times. The report quoting Iranian and western experts said that the slow development of new oilfields and the poor condition of many existing wells have caused the fall, according to Iranian and western experts.

Iran must invest atleast $25 bn every year in the energy sector or risk becoming a net importer of oil, the report added. Western oil majors declined to develop Iran's energy sector because of US penalties.

Meanwhile, US crude oil has fallen below $70 on persistent worries that Europe's debt crisis would slow global economic recovery. Oil markets remain well supplied with the Organization of the Petroleum Exporting Countries pumping about 2 million barrels per day (bpd) above agreed output targets, a Reuters report said.Crude stocks at the delivery hub for U.S. futures contracts in Cushing, Oklahoma are at a record high.While oil is just below the $70-$80 range many in OPEC have said they prefer, OPEC officials have stopped short of calling for any steps to prop up prices and the group is not scheduled to meet until October.

The positive impact on oil could come from a recovery in demand in emerging economies. World oil demand is expected to rise by 1.62 million barrels per day (bpd) in 2010, led by emerging economies such as China, according to the International Energy Agency.

It remains to be seen who will get their figures and predictions right, the analysts who think the prices are moving in tandem with currency rates or the Trafigura view of sluggish demand. Oil prices have defied prediction and logic most of the time in the past few years.