Business | Oil & Gas
Opec action considered key to oil outlook
Opec's actions and price aspirations will be key to the price outlook for crude oil, says the latest report from Standard Chartered Bank.
- By Stanley Carvalho, Staff Reporter
- Published: 00:00 October 30, 2006
Abu Dhabi: Opec's actions and price aspirations will be key to the price outlook for crude oil, says the latest report from Standard Chartered Bank.
It said that supplies are improving and demand growth has eased although it is still firm.
"Opec's actions will now be key to the outlook for oil prices and a more pressing issue is the price level that Opec will wish to defend," said Standard Chartered's October report.
"Opec faces challenges in addressing its quota allocations and achieving some consensus on a reasonable price of oil to defend."
Oil prices have fallen by 20 per cent to 24 per cent from their August peak as geopolitical tensions eased, the US hurricane season passed with little incident, US inventories remained above seasonal norms and demand forecasts have been persistently reduced.
The report said there seemed to be little consensus over a reasonable price for crude, with some Opec members becoming agitated when prices fall below $60 per barrel and others seeing $50 as the floor.
"Given the investment required to meet future demand and the economics of alternative energies, we believe $40-50 per barrel is a viable long term price for crude oil, but there is still a lack of clarity on Opec's view," Standard Chartered said.
Divergent views
"Recent actions suggest that some members are prepared to defend a floor of $60. However, the fact that there has been no extraordinary meeting, no formal cut announcement and no comment from Saudi Arabia, suggests a lack of real concern and a lack of unanimity with prices at this level," it added.
It said oil prices would weaken once supply risks eased and Opec's margin of spare capacity improved, and it became increasingly evident that the world is well supplied. However, while supply risks have been put on the backburner for now, geopolitical tensions persist and still have the potential to flare up at any point, causing a spike in prices.
Meanwhile, non-Opec supplies are forecast to increase at a record rate in 2007, and Opec's capacity is also expanding. Opec plans to increase capacity by 5.2 million barrels per day by 2010. More than 50 per cent of the increase is to take place in Saudi Arabia and Nigeria.
The International Energy Agency expects non-Opec supply to increase by 1.8 million bpd in 2006 and 1.6 million in 2007.
"We expect global growth to slow a little in 2007, led by the US where we now anticipate GDP growth of 2.8 per cent in 2007, down from 3.3 per cent in 2006. The slowdown in the US will inevitably have some impact on the rest of the world but growth is generally still relatively firm."
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