HSBC: Speculation Adds $30 To Oil

Analysts Reports, Business, China, Company Strategy, Economics, Middle East

By Malini Hariharan

GROWTH in China and other leading economies has slowed and oil prices have slipped but analysts are predicting strong prices for the rest of 2011 and 2012. Their reasoning is based on continued speculative activity in this commodity and geopolitical risks in the Middle East .

HSBC’s recent report on this subject estimates that speculation has contributed as much as $30/bbl to May’s peak oil price.

This is in line with arguments about we will make about the dysfunctional, and therefore harmful, nature of oil markets in our new ebook – Boom, Gloom and the New Normal.

The analysts point out that “net long positions held by managed funds have roughly doubled since February 2010 and nearly tripled since September 2009”. Each 100m bbl in net long positions is associated with US$20/bbl move in the oil price.

While speculation is shaping markets in the short term, demand and supply fundamentals cannot be ignored, the report adds.

Demand is expected to grow this year but at a slightly slower pace than the 2.9% recorded in 2010.

Beyond 2011,the analysts forecast demand to expand at 1.4-2.0% annually with the bulk of the growth coming from the non-OECD countries. But there is a risk of demand destruction if prices remain above $100/bbl.

Supply from non-OPEC countries is expected to lag behind the estimated 1.5-1.6MMbbl/day increase in global demand annually. OPEC will have to play a balancing role producing a little under 30m bbls in 2011 and slightly above this figure in 2012.

OPEC currently has spare capacity to stop prices from rising but its willingness to use it is another issue. Its spare capacity is also likely to be eroded from 2014 on demand growth which should put upward pressure on prices.

HSBC’s prediction for Brent is $110/bbl in 2011 and $90/bbl in 2012-2013. But other banks are more bullish.

“It is only a matter of time until inventories and OPEC spare capacity will become effectively exhausted, requiring higher oil prices to restrain demand, keeping it in line with available supplies,” said a Goldman Sachs analyst.

Goldman Sachs recently raised its its 12-month Brent price estimate to $130/bbl while Morgan Stanley increased its average forecast for Brent this year by 20% to $120/bbl l and by 24 percent for 2012 to $130/bbl.

PREVIOUS POST

New Normal Course In Frankfurt On 16-17 June

03/06/2011

The blog is excited about its first New Normal seminar in Frankfurt, Germany&nbs...

Learn more
NEXT POST

Shell Firms-up Interest in New US Capacity

07/06/2011

By Malini Hariharan Shell Chemicals has become the latest entrant to a steadily ...

Learn more
More posts
Global polyethylene oversupply, the highest in 19 years, hasn’t gone away
03/07/2020

By John Richardson BRENT crude futures surged by 80% during the second quarter and enjoyed their bes...

Read
China could be in complete polypropylene self-sufficiency by 2022
28/06/2020

By John Richardson SORRY to labour the point but this comes from a genuine concern for the readers o...

Read
Asian polyethylene price recovery faces multiple challenges
25/06/2020

By John Richardson THERE are reports of significant cuts in Middle East polyethylene (PE) operating ...

Read
China’s long-term ambition for paraxylene self-sufficiency seems close to being realised
21/06/2020

On Friday, I examined how China’s paraxylene (PX) net imports could fall to as little 8m tonne...

Read
China’s big declines in 2020 PX and PP imports: the impact on its major trading partners
18/06/2020

By John Richardson CHINA’S refineries and petrochemicals plants came roaring back to almost fu...

Read
Paraxylene demand collapses as higher China production threatens 6m tonne fall in imports
15/06/2020

By John Richardson DON’T SAY I didn’t tell you that a decline in stock markets would happen. The...

Read
Coronavirus will severely damage the developing world unless we take the right steps
12/06/2020

By John Richardson IT IS a fantastic achievement. “Over the last 25 years, more than a billion peo...

Read
Main Street versus Wall Street and the crisis in the developing world
10/06/2020

By John Richardson RISING equity and oil markets do not necessarily point to a V-shaped recovery. I ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more
X

Uncover exclusive industry upates from ICIS

Interested to uncover more articles related to this topic? Explore additional news, insights and intelligence, tailored to the markets you are interested in by accessing exclusive content from ICIS.com

DISCOVER MORE