(EnergyAsia, September 17 2012, Monday) — Crude oil prices will face near-term weakness, but will recover to average more than US$100 a barrel next year, said consultant Wood Mackenzie.
At last week’s APPEC 2012 conference in Singapore, Alan Gelder, the company’s head of downstream research, said the oil market would be influenced by two trends from now to 2013.
Firstly, barring a supply disruption, for 2012, he said oil prices have likely have seen their high point for the year, but will recover to remain above US$100 per barrel next year.
Secondly, the start-up of new complex refineries will increase the demand for heavy crudes while tight oil play in the US will result in the increase the supply of light sweet crudes, leading to a narrower light-heavy crude differentials.
Mr Gelder delivered his speech before the US Federal Reserve chairman announced further monetary easing last week, sending US WTI crude surging past US$100 a barrel for the first time since early May.
Asian governments will come under increased pressure to re-regulate their countries’ oil markets to reduce the financial burden of sustained high levels of price subsidies. This could slow down the region’s oil demand growth.
Mr Gelder said: “Although we won’t see demand growth like that of 2009-2010, global oil demand growth will help keep prices above US$100 in the near term. This is even if healthy Non-OPEC production and OPEC spare capacity growth signal prices on the downward trend.”
Wood Mackenzie expects next year’s global oil demand growth to remain strong at one to 1.5 million b/d, driven mostly by Asia’s transportation, petrochemical and power sectors.
This forecast, however, could be affected by a number of external factors such as the global economic environment, geopolitical issues and changes to supply outlooks.
Economic events such as a Eurozone recession could decrease the demand for crude oil thereby weakening prices.
Countering this weakness, geopolitical instability and conflicts involving major producing countries such as Iran, Syria Sudan and Iraq will have a greater impact on the markets than the projected growth in US tight oil production, said Mr Gelder.
Also speaking at the same event, another senior Wood Mackenzie analyst, Sushant Gupta, said:
“High oil prices will increase the subsidy burden on many governments in Asia which will increase the pace of de-regulation.”
According to the company’s estimates, refining and marketing companies in India, China, Malaysia, Indonesia, Taiwan and Vietnam lost a combined US$70 billion to US$80 billion on account of enforced domestic subsidies from government intervention in controlling the retail fuel prices.
Mr Gupta said there is considerable pressure on governments to deregulate the domestic oil markets to let market forces determine retail fuel prices.
This will help slowdown oil demand growth in key markets such as China, India, Indonesia and Malaysia, or force a shift towards alternate fuels.
Income levels, consumer behaviour and inter-fuel competition will also influence the impact of deregulation on oil demand. In India, subsidies distort the demand for diesel and gasoil as motorists switch to driving diesel cars and power companies using gasoil to replace fuel oil to produce electricity.