APPEC: WoodMac sees near-term downward oil price pressure

Oil prices likely have peaked for the year barring a supply disruption, and Wood Mackenzie expects global oil demand growth will help keep prices above $100/bbl until 2013, WoodMac analysts told the Asia-Pacific Petroleum Conference in Singapore.

Alan Gelder, head of WoodMac downstream research, said on Sept. 12 that new price drivers could cause fluctuation in oil prices out to 2013.

In addition, he noted that new complex refineries increase the demand for heavy crudes and US tight oil plays will increase the supply of light sweet crudes, leading to narrower light-heavy crude differentials.

“Although we won’t see demand growth like that of 2009-10, global oil demand growth will help keep prices above $100/bbl in the near term,” Gelder said.

Robust oil demand growth is expected by 2013, increasing by 1-1.5 million b/d. The anticipated growth is being driven by Asian oil demand for transportation, petrochemical, and power sectors. Indonesia, China, Japan, and India account for a major share of Asian demand growth.

There are risks to the forecast, Gelder noted.

“Price influencers have moved beyond fundamental market forces and are now driven by global economic uncertainty, geopolitical issues, and changes to supply outlooks. Economic events such as a Euro-zone recession could decrease the demand for crude oil thereby weakening prices. Geopolitical factors can affect major supply countries such as Iran, Syria, Sudan, and Iraq, which has an impact greater than the projected growth in US tight oil production.”

In a separate speech on the near-term oil product market trends, WoodMac senior Asian downstream analyst Sushant Gupta said high oil prices will increase the subsidy burden on many governments in Asia, which will increase the pace of deregulation.

WoodMac estimates that refining and marketing companies in India, China, Malaysia, Indonesia, Taiwan, and Vietnam experienced a combined loss in the range of $70-80 billion last year because of government intervention in controlling consumer prices.

As such, there is considerable pressure on governments to deregulate the markets in whatever capacity they can and let the market forces determine the consumer prices.

This puts a downward risk to oil demand growth in key markets such as China, India, Indonesia, and Malaysia or a shift towards alternate fuels, Gupta said.

“Oil prices will remain high enough to make the subsidies unsustainable for many economies and will lead to eventual deregulation,” Gupta said.

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