Bloomberg: November 23, 2006 00:25 EST
(a blast from the past -- 12 months ago...)
Commodity Strategists: Oil Prices May Fall 9% in '07, CFC Says
By Angela Macdonald-Smith and Nesa Subrahmaniyan
Nov. 23 2006 (Bloomberg) -- U.S. crude oil prices may fall as much as 9 percent next year as global supply rebounds, outpacing growth in demand, CFC Seymour Ltd. said.
West Texas Intermediate, the U.S. benchmark crude variety, may average $62-$63 a barrel next year, down from a forecast average of $67-$68 this year, CFC Seymour said in a presentation. Supply may increase by about 3 percent next year, double the rate of demand growth, said Dariusz Kowalczyk, chief investment strategist at the Hong Kong-based securities firm.
New York futures reached a record $78.40 on July 14 on concern that a conflict between Israel and Hezbollah forces in Lebanon could spread in the Middle East, source of about a third of the world's oil. Prices have fallen 23 percent since then because higher-than-average U.S. stockpiles and after the International Energy Agency cut demand growth forecasts.
``In 2007, the supply of crude will exceed demand, growth in demand will not match growth in supply,'' Kowalczyk said in an interview. ``The main reason is non-OPEC production will increase next year. African output will go up 12 percent in 2007 and the IEA has said Latin America and Russian output will also increase.''
Crude oil for January delivery closed yesterday at $59.24 a barrel on the New York Mercantile Exchange. It was at $59.30 in after-hours electronic trading at 1:18 p.m. Singapore time.
CFC Seymour, which focuses on structured financial products and corporate bonds for customers in emerging markets, expects prices to fall to $56 a barrel by the end of 2007.
Earlier Estimate
Prices have averaged $66.70 so far this year, 18 percent higher than last year's average of $56.71. That's also higher than the $58 consensus from a Bloomberg News survey in December, and higher than Kowalczyk's estimate of a year ago.
On the other hand, the Organization of Petroleum Exporting Countries will probably defend $60 a barrel as a floor to prices, while the U.S. will resume ``aggressive'' foreign policy, which will increase the premium in the oil market attributed to geo- political risks, the firm said.
Kowalczyk, who joined CFC in 2004, was previously an economist at MMS Standard & Poor's in Frankfurt and spent five years with HypoVereinsbank Group in Poland, where he was a financial economist.
CFC Seymour's forecast for 2007 prices is in line with the $62 median forecast of 34 analysts that provide data to Bloomberg News. The estimates range from $50 to $76.60. Prices may be higher than $60 a barrel next year, Fatih Birol, chief economist of the Paris-based International Energy Agency, an advisor to 26 nations, said Nov. 10.
Too Wide
Those forecasts may be too high, said Andrew Harrington, a commodities analyst at Australia & New Zealand Banking Group Ltd. in Sydney, who expects prices may average $55 a barrel next year.
``I think you're going to see a slowing economy,'' which will reduce demand, Harrington said today. ``There's also a lot of exploration and production going on in non-OPEC areas.''
The OPEC, which pumps 40 percent of the world's oil, began cutting production this month in an effort to stem further price declines.
The group will probably agree on a further cut in output quotas at its December meeting as it seeks to prevent prices from falling below $55 a barrel, Kowalczyk said. Oil prices may rise to as high as $68 a barrel by the end of the year, CFC said.
The IEA this month cut its forecast for China's oil demand growth for 2006 and 2007 because of slower gains in the use of transport fuel. China's oil demand may rise 6.2 percent this year, and 5.4 percent next year, it said. World oil demand this year will average 84.49 million barrels a day, rising to 85.94 million in 2007, it said.
Supply Rebound
Global supply will probably rebound after a ``period of stagnation,'' CFC Seymour said. Middle East producers are set to invest $94 billion over five years, including $80 million by Saudi Arabia, half of which will fund a boost in oil production, it said. Saudi Arabia, the world's biggest oil producer, is set to raise output by 1.7 million barrels, or 16 percent, over the next three years, it said.
Non-OPEC supply is set to jump, by 3.3 percent in 2007, led by Africa, Latin America and the former Soviet Union, CFC said. Spare production capacity will probably rise, as will commercial oil reserves, while the U.S.'s build-up of emergency stockpiles is almost over, all pointing to lower prices, it said.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net ; Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net .
Last Updated: November 23, 2006 00:25 EST |
