Speaking at APPEC 2012 Wood Mackenzie has drawn two trends in the oil market from now until 2013. The company firstly believe that barring a supply disruption, for 2012, oil prices have reached the peak price for this year. However, Wood Mackenzie expects prices to remain above the US$ 100 /bbl mark until 2013, but admit that they may fluctuate due to new price drivers. The second trend involves new complex refineries. The increase and demand for heavy crudes and tight oil play in the US will of course increase the supply of light sweet crudes. This leads to a narrower light/heavy crude differential. High subsidy burden on various governments in Asia at our projected oil price will increase the pressure to deregulate, so putting a downward risk on oil demand growth in key markets over time.
Alan Gelder, Head of Downstream Research said, ‘although we won’t see demand growth like that of 2009 – 2010, global oil demand growth will help keep prices above US$ 100 /bbl in the near term. This is even if healthy non-OPEC production and OPEC spare capacity growth signal prices on the downward trend.’
Until 2013, robust demand growth is expected, increasing by 1 – 1.5 million bpd. This demand will be driven by Asia demand for transportation, petrochemical and power sectors.
Gelder continued that there are risks to Wood Mackenzie’s forecast, ‘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 Eurozone 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.’
Wood Mackenzie’s Senior Asian Downstream Analyst, Sushant Gupta, also commented on near term oil market trends and said, ‘high oil prices will increase the subsidy burden on many governments in Asia which will increase the pace of deregulation.’ Wood Mackenzie have estimated that in 2011, refining and marketing companies in India, China, Malaysia, Indonesia, Taiwan and Vietnam made a combined loss of up to US$ 80 billion due to government intervention in controlling the 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. Income levels, consumer behaviour and inter fuel competition will ultimately drive the impact of deregulation on oil demand. For example in India, subsidies distort the demand for diesel/gasoil, with diesel cars showing a strong growth in sales and diesel/gasoil even replacing fuel oil to generate power. To summarise Gupta said, ‘oil prices will remain high enough to make the subsidies unsustainable for many economies and will lead to eventual de regulation.’
Adapted from press release by Claira Lloyd.