Its going to be slippery, but India wont trip

Written by Anupama Airy | Updated: Dec 31 2007, 04:42am hrs
This is not a price forecast, as forecasts are usually prone to considerable inaccuracies. Therefore, it is difficult to predict whether the crude oil market will explode during 2008 to touch a dreadful $125 a barrel.

But, going by the outlook given by the International Energy Agency (IEA) the Wests energy watchdog or for that matter of Opec, the cartel of oil producing countries, an attempt can definitely be made to try and get closer to the likely price levels that this scarce commodity would witness in the New Year.

International crude oil prices crossed the $99-a-barrel mark in November, 2007 and peaked to $99.29. However, oil prices shied away from the much-hyped $100-a-barrel level as the IEA and Opec decided to cut their world demand growth estimates for 2008, due to the threat of an economic slowdown in the US amid a credit crunch.

Going by the US Department of Energy Annual Energy Outlook, 2008, oil prices will stage an approximate 38% decline over the next 8 years. Interestingly, their short-term prediction for 2007 back in 2006 was for crude oil to be around $57 way off the mark. While this may appear to be too optimistic a prediction, with Opec cutting its projections for world oil demand growth in 2008 (citing the threat of an economic slowdown), the prices should fall during 2008.

Opec, the oil cartel which controls 40 % of the worlds oil supply, last week rejected an official increase in its production ceiling, warning that demand could be lower than forecast because the impact of the credit squeeze.

On its part, IEA said the crude oil demand growth would jump by 2.1million barrels a day in 2008 as strong West Asia consumption will offset the US economic slowdown and the impact of record prices. The revised forecast is about 200,000 b/d higher than last months IEA estimate of growth of 1.9m b/d, and it is significantly higher than Opecs own calculations of growth of just 1.3m b/d.

According to IEA, higher output from some Opec countries, such as Iraq, Angola and the UAE, will boost the cartels real output in December in spite of its decision to leave its official production ceiling unchanged.

Overall, winter prospects have clearly improved, the IEA said, but $90-a-barrel oil makes clear that the market is still on the edge and is unlikely to relax until the peak weather risks have subsided and a clear trend in Opec supplies is apparent.

The IEA said, high oil prices were depressing only marginal demand growth in developed countries, such as the US or Germany. Consumption among rich countries would rise 1.3% this year, it said. However, in developing countries, the watchdog said demand would grow 4% in 2008 led by strong economic growth in China, West Asia and India.

The jump in consumption in 2008 will force Opec to pump more than initially forecast or to draw down inventories as non-Opec supply is expected to grow by only 1m b/d. In spite of the gap between demand and non-Opec supply, this years increase will be an acceleration from 2007s meager growth of 0.5m b/d.

Crude oil and product inventories had already fallen below the 5-year average, the IEA said. In October 2007, the inventories had equalled 52.6 days of demand, down from 55 days during the spring and 54 days in the summer.

West Texas Intermediate (WTI) monthly crude oil prices averaged more than $85 a barrel in October and almost $95 a barrel in November, up $27 and $36 a barrel, respectively, from a year earlier.

The daily closing spot price for WTI peaked at $99.16 a barrel on November 20 but started falling near the end of the month in anticipation of additional Opec production, and was expected to continue to decline slightly through 2008.

However, energy sector watchers feel that the monthly average prices for the WTI are expected to exceed the $80-a- barrel mark, anytime in 2008.