Commodities | Feb 12 2008
By Chris Shaw
Since the beginning of the year the oil price has traded through US$100 per barrel and below US90 per barrel and is now again pushing up towards US95 per barrel, a level of volatility National Australia Bank minerals and energy economist Gerard Burg suggests is likely to remain in place through 2008.
According to Burg much of the volatility has been due to changes in market sentiment, as so far this year there have not been any major supply disruptions to cause the price to fluctuate based solely on fundamentals.
Given that supply side risks remain and demand expectations are likely to be influenced by estimates of the extent of any global economic slowdown such changes in sentiment are likely to continue, but while Berg expects prices will continue to fluctuate they should remain at historically elevated levels given low stockpiles.
Also providing support should be continued disappointing production growth from non-OPEC countries, tightening the market globally given demand growth should be solid. International Energy Agency figures suggest demand growth this year of 2.3%, which would be the strongest growth since 2004.
This will leave the world more reliant on OPEC for its supplies but Berg notes OPEC production is currently near capacity levels, meaning there remains some upside risk for oil prices if supplies elsewhere are affected for any reason.
Berg is now forecasting an average oil price for 2008 of US$85 per barrel for West Texas Intermediate, up from his forecast last September of an average of US$65 per barrel and well above the 2007 average price of US$72.34.
This flows through into higher prices for refined products as well, with jet fuel prices expected to average around US$824 per tonne this year compared to US$710.60 per tonne last year, and petrol prices in Australia to average something north of $1.36 per litre as against last year’s average of $1.25.