Brent crude '12 avg to fall to $110/bbl on weak consumption - EIU

23 March 2012 05:37  [Source: ICIS news]

By Nurluqman Suratman

Brent crude SINGAPORE (ICIS)--Brent crude oil’s average price is expected to fall this year by at least $1/bbl to $110/bbl because of slower global consumption, according to global forecasting service provider - the Economist Intelligence Unit (EIU) - in a report released on Friday.

A stronger US dollar, which makes dollar-denominated commodities less attractive as an investment, will also pressure Brent prices to ease down from an average of $111.01/bbl recorded in 2011, the EIU said in the report titled “Asia Competition Barometer - Petrochemicals and Chemicals”.

The EIU report was commissioned by the Singapore Economic Development Board (EDB).

The world economy is expected to grow at a slower rate of 3.3% in 2012 from 3.8% last year, according to global financial stability watchdog - the International Monetary Fund (IMF) - with a strong likelihood of a “minor recession” in the eurozone.

While demand for oil is expected to fall on the back of a slowing global economy, geopolitical risks will help limit the decline in oil prices, the IMF said.

The International Energy Agency (IEA) estimates a “modest expansion in oil product consumption” to 89.9m bbl/day this year from 81.9m bbl/day in 2011, “as a subdued economic backdrop coincides with relatively high oil prices,” the agency said in a recent report.

According to the EIU, oil prices will “remain hostage” to sentiment surrounding the effects of the eurozone debt crisis and the global economic prospects this year.

“A marked deterioration in the outlook for the eurozone could be expected to lead to dramatic falls in commodity prices, given that it would most likely have severe consequences for global growth,” it said in the report.

“However, loose global monetary conditions and a loss of confidence in sovereign creditworthiness, which is encouraging investors to seek returns in real assets, will offer some support to prices,” the EIU said.

A further weakening in Brent crude prices is expected next year to an average of $103.63/bbl, before rebounding to $108.25/bbl in 2014, it said.

With global demand set to stabilise in 2015-16, commodity prices are expected to edge higher, it added.

“After sharp falls in the final quarter of 2011, commodity prices generally have had a strong start to 2012, buoyed by data releases showing more positive growth trends in both China and the US and some tentative signs that the euro zone debt markets will avoid widespread defaults,” the EIU said.

The North Sea benchmark and US crude prices are being been buoyed by lingering concerns over supply disruptions amid heightened tensions between Iran – the world’s fourth largest oil producer – and the West.

But China, the second largest economy in the world, cut its economic growth target for the first time in seven years to 7.5% because of weakening exports, with its major markets in the West - the eurozone and the US - under financial and economic stress.

Crude prices fell by almost 2% on Thursday on concerns over the demand after preliminary data from banking firm HSBC showed manufacturing activity in the world's second biggest oil consumer shrank for the fifth straight month in March.

At 04:22 GMT on Friday, May Brent crude on London’s ICE futures exchange was trading at $123.36bbl, up 22 cents from the previous close.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections


By: Nurluqman Suratman



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