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South Africa: Analysts Doubt Gazprom's $250 Claim
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Business Day (Johannesburg)
25 July 2008
Posted to the web 25 July 2008
Sure Kamhunga
Johannesburg
RUSSIAN gas and oil monopoly Gazprom yesterday claimed it was inevitable oil prices would rise to $250 a barrel next year.
But analysts in SA said there were already signs of the price softening in response to waning demand as consumers respond to spiralling fuel costs. They said the economy, already buffeted by a host of negative factors, would not sustain such a high price.
"We certainly do expect such an increase, which should come as no surprise," said Sergey Kupriyanov, speaking on behalf of Gazprom CE Alexei Miller.
"Global energy consumption is growing incredibly fast (and) in the existing market situation, amid fiercer competition for access to the existing energy resources and a shortage of transportation capacity, we see no reason to expect a fall in prices. Higher prices are inevitable and one must come to terms with it," Kupriyanov said.
Local economists were not convinced that the oil price would spike to that level, and predicted it would trade in the $115-$200 range, saying it was difficult to speculate with certainty on price movements for next year.
Stanlib economist Kevin Lings said forecasting a price of as high as $250 was risky. But he conceded that sudden events like supply disruptions could influence the oil price as the effective spare capacity of members of the Organisation of Petreleum Exporting Countries -- excluding Iraq, Indonesia, Nigeria and Venezuela, which face ongoing security, operational or investment issues -- had now slipped to below 2-million barrels a day.
" I would expect the oil price to moderate in the months ahead," Lings said. "However, the constant risk of further supply disruptions coupled with the fact that we are simply unaware of how significant a factor oil market speculation has been, makes such a forecast risky."
Lings said demand for oil had softened, particularly in the US, the world's largest consumer, as people tightened budgets due to rising prices, and this was affecting the oil price. "There is little doubt that in countries where consumers have felt the full effect of the higher oil price -- namely the developed countries and most of the world's poorest nations -- oil demand is already stagnating or even falling," he said.
" Demand in the US -- the traditional driver of oil demand growth in the developed world -- is expected to reduce its oil demand by around 2% in 2008. "
Ling said that in the medium to long term, consumers would opt for smaller cars, as was already happening in the US, as they realised that fuel prices would remain high.
Commodity analyst at Rand Merchant Bank Josina Oliphant said the oil price could end the year at about $135 due to softening demand.
"Beyond this year, we expect further slight contraction and moderation but it is really tricky," she said.
Sanlam Investment Management economist Arthur Kamp also said there had been a major change in consumer behaviour as a result of the rising fuel prices, which should affect demand and the oil price.
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An oil price beyond $200 would be "disastrous" for SA, whose economy is already under pressure from waning consumer demand because of rising inflation and interest rates.
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