Singapore (Platts)--30Nov2007
India's CRISIL Research said Friday that it expects crude oil prices to
progressively fall over the next two years, barring any sharp drop in the
dollar.
"Based on our expectation of an easing spare capacity scenario, and a
likely slowdown in the US economy, we believe crude prices will decline from
current levels with speculative unwinding [of trading positions] likely to
amplify the trend," it said in its November 2007 crude oil sector update.
It did not give any specific forecasts for oil prices in its report,
"Crude oil on a slippery slope."
Comparing gold-adjusted crude oil prices--which eliminate the effect of
currency movements--CRISIL said that prices have already peaked in 2006 and
are on their way down, driven by fundamentals.
Pointing to OPEC's announced capacity addition plans, with investments of
$150 billion planned through to 2015, CRISIL expects spare capacity, expressed
as days of global oil demand, to increase to 34 days by 2010 from 18 days this
year.
In addition, an expected slowdown in US economic growth--which accounts
for nearly a quarter of global demand--is likely to depress oil demand.
"Even if China's GDP continues to clock 9-10% growth year on year, the
resultant increase in oil demand will not be sufficient to offset the decline
in demand from the US," said CRISIL, pointing out that China accounted for
less than 10% of total global oil demand of 85.7 million b/d this year.
"Our forecast shows an increase in spare capacity even without a
slowdown. Therefore, any significant slowdown will only add to the downward
pressure on oil prices."
Noting the recent trend of oil price movements being accentuated by
dollar changes, it included this caveat: "Going forward, barring any sharp
drop in the dollar, and purely based on demand-supply, dollar crude oil prices
are likely to decline from current levels."
Front-month WTI crude futures on the New York Mercantile Exchange touched
an all-time high of $99.29/barrel on November 21 and are currently trading
around $91/b.
CRISIL, whose majority shareholder is Standard & Poor's, is India's
leading ratings, research, risk and policy advisory company.
S&P, like Platts, is owned by The McGraw-Hill Companies.
--Deepa Vijiyasingam, deepa_vijiyasingam@platts.com
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