Although crude oil saw its biggest price drop since April 2005
in New York yesterday, a Chinese think tank predicted the average
global oil price will swing to a comparatively high level this
year.
Crude oil for February delivery dropped as much as US$2.21, or
3.9 percent, to $53.88 a barrel, as mild weather in the United
States cut heating fuel demand and caused inventories to swell.
"Because of curbed demand, the crude price will see a slight
drop this year. But the yearly average will stay high, keeping
pressure on major Chinese oil-dependent industrial segments," said
Niu Li, a senior analyst with the State Information Center (SIC),
yesterday.
The SIC, under China's top economic planner the National
Development and Reform Commission, said in a recent paper that the
average global oil price for this year will fluctuate between US$55
and US$65 per barrel. The predicted average price is much lower
than the peak of US$77.03 in 2006, but still lofty compared to
previous years.
As the global oil price is subject not only to supply and
demand, but uncertainties such as geopolitics and natural
disasters, it is difficult to forecast. Many multinational research
institutions and or-ganizations differ substantially in their
outlook on this year's oil price.
"Despite the difficulty (in predicting the price), we do believe
the global oil price is predictable by addressing supply and
demand. Of course, such analysis is built on a relatively stable
geopolitical and climate hypothesis," said Niu.
In terms of demand, the International Monetary Fund predicted
the global economy growth momentum would slow from last year's 5.1
percent to 4.9 percent this year. The loss of growth momentum of
major world economies such as the United States and Europe will
reduce global demand for oil.
Niu also pointed out that the efforts of many countries to
develop alternative energy resources will pay off this year,
helping to reduce dependence on oil. And the current high oil price
will fend off speculation because investors are crystal clear the
high price is always accompanied by extra risk.
Although demand in 2007 will not be so robust as last year, the
international oil price will not slump. Instead, according to the
SIC report, there is good potential for a rebound because the oil
supply will tighten as well.
Geopolitical risks still hover over the Middle East and require
strengthened long-term efforts to dissolve. And controls on the oil
industry have been tightened for major oil exporters such as Russia
and Venezuela.
Moreover, since most of the spare global production capacity is
under the control of the Organization of Petroleum Exporting
Countries (OPEC), its decision to cut production will count in
keeping the price high.
A veteran analyst from BP said it was unlikely there would be
major ups and downs in the oil price this year.
"Oil production in Iraq is not expected to be resumed to full
capacity in the short term and there are many uncertainties about
oil supply from Iran and Nigeria. Based on these factors, the
global supply of crude oil depends to a large extent on OPEC, which
is in control of almost all the spare capacity and does not want
the oil price to drop below US$55," said the BP analyst, who wished
to remain anonymous.
Despite staying at a high level, the average oil price for 2007
is predicted to be slightly lower than that of 2006. That will
certainly turn out to be a shot in the arm for the Chinese economy
in terms of lowering the cost of crude exports. Theoretically
speaking, the slight drop in the global oil price will also benefit
enterprises and grassroots customers by cutting down on their oil
expenditure, said Niu.
Since the domestic oil product price is not fully
market-oriented and not in line with the global price, the benefits
for Chinese businesspeople and ordinary customers may not show up
instantly, said Niu.
Yang Weicai, deputy director of the China Petroleum and Chemical
Industrial Association, said the 2007 oil price would not have a
major impact on the chemicals industry.
"Because of the robust demand for chemical products in China,
the high average price of crude will not squeeze the profit of the
chemicals sector in a massive way," Yang said.
Cao Xiaoxi, chief engineer of the Sinopec Economic and
Development Research Institute, said as long as production capacity
still falls below demand, the extra cost of crude would not damage
the chemicals sector substantially.
"Of course, the prices for major chemical products will stay
high in line with the average global crude price," Cao said.
But the oil-refining business may continue to suffer from the
high oil price, according to the SIC's Niu. "If the crude price is
above US$60, the refining segment of China will lose money," he
said.
Other sectors including transport, logistics, agriculture and
fishery will also suffer from an oil price as high as US$60 per
barrel.
"These sectors, involving massive oil consumption and the use of
fertilizer, are vulnerable in the face of the high oil price," Niu
said.
(China Daily January 10, 2007)