Commodities | Aug 17 2009
By Chris Shaw
The oil price is trading around US$70 per barrel at present and in the view of Standard Chartered range trading around this level can be expected to continue through the September quarter as the current supply-demand balance appears unlikely to change significantly in coming months.
While Chinese demand has remained strong the group notes this represents only 10% of total global demand and so is not enough to push prices higher, particularly as OECD demand remains lacklustre. This is stopping any erosion of what are currently adequate stock levels, leading the group to suggest it will require an increase in industrial activity globally for stocks, and especially distillate stocks given their record levels at the moment, to start to come down.
Such a strengthening in global demand is expected to emerge in the December quarter, driven by the combination of a weaker US dollar and an improvement in global appetite for risk. Emerging markets are likely to lead the way in the group’s view, as the level of economic activity in the energy-intensive developed economies of the OECD is forecast to remain subdued through to 2011.
Given little expected boost from OECD demand, Standard Chartered suggests ongoing supply restraint will continue to be fundamental to the oil price outlook. OPEC has played its part, taking around four million barrels per day out of the market since last September, which has been enough to largely offset the weakness of demand during the period.
Current expectations are for the call on OPEC crude output to balance the market to remain essentially unchanged next year relative to this year, which suggests OPEC is unlikely to announce any adjustment to its output policy when it meets again next month.
While non-OPEC output has surprised on the upside this year the surprise has been modest, meaning it remains OPEC ouput that will drive the supply side of the market. As part of this the analysts note current spare capacity in OPEC member nations is around 5.5 million barrels per day.
Given this Standard Chartered expects oil will continue to trade between US$65-$70 per barrel through the September quarter and then move steadily higher in the final quarter as Asian demand picks up and as the US dollar falls further.
While investor flows may be constrained in the first half of 2010 given more ambivalent views on the US dollar’s direction in the period, further weakness in the greenback is expected in the second half of next year and the group sees this as a driver of higher oil prices at that time.