Oil prices to soften: analysts

Oil prices to soften: analysts
By Ryan Huang | Posted: 24 August 2011 0023 hrs

SINGAPORE: From the Arab Spring to the debt crises in Europe and the US, world events are conspiring to soften the outlook for oil prices.

It could not have come at a better time to help many economies recover.

Celebrations in Tripoli mark new freedoms for the people of oil rich Libya and anticipation that the country will regain its role as a major exporter to the world.

Goldman Sachs said production could recover more quickly than forecast and this should pressure prices downwards as world economic growth slows.

Dominic Schnider, head of commodity research at UBS, said: In the short run, let's say towards the end of the year, we have the potential that actually crude oil prices, when we talk about WTI, (will) head towards US$70. That would imply a drop in Brent prices towards US$90.

"The weakness that we're likely to see is really related to the softness in demand. Economic activity could contract in one of the quarters, and I think that's going to weigh on overall crude oil consumption.

"So it's lower demand and the outlook that some of the Libyan problems that are likely to be solved and adding to additional supply that is likely to weigh on markets."

Oil prices spent most of the first half of this year above US$100 a barrel. That has hurt companies and consumers, and put some economies on course for recession.

The last few weeks, however, have witnessed a definitive move lower, with some analysts forecasting oil could drop to as low as US$70 in the short term.

Economists said a sustained drop in oil prices will help to buffer the turmoil in financial markets.

Leong Waiho, senior regional economist at Barclays Capital, said: "Refining centres in Asia and relatively industrialised economies in Asia will benefit the most.

"Singapore clearly fits into this camp with large refining presence ... for exports. But also the likes of Taiwan and Korea, which are relatively high on the energy intensity scale, will also stand to benefit significantly."

If oil prices remain low for the next six months, we could start to see lower petrol prices and electricity tariffs. For example, some expect petrol prices to drop as much as 10 percent over the next 12 months.

- CNA/al

- wong chee tat :)