Global economic woes likely to drive down oil price

This is the silver lining in the dark cloud of gloomy economic news currently dominating the headlines.

THE economic woes in the developed world are likely to drive the international oil price lower in coming months.

However, a repeat of the second half of 2008, when the Organisation of Petroleum Exporting Countries (Opec) oil basket price collapsed from a monthly average of $131,22 per barrel in July to $38,60 per barrel in December, is unlikely unless there is a disorderly breakup of the euro zone.

The Opec basket price tends to be a better predictor of South African fuel prices, as the daily price uses refinery prices from the Middle East and Singapore as benchmarks, rather than the Brent oil price. Brent tends to be more volatile as it is the crude oil benchmark for the financial market in London.

The current basket contains: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban ( United Arab Emirates) and Merey (Venezuela).

This is the silver lining in the dark cloud of gloomy economic news currently dominating the headlines.

Today South African motorists will enjoy a 55c/l cut in the retail petrol price, while the wholesale price of diesel will be 24,8c/l lower.

According to the Department of Energy’s Central Energy Fund, the daily over-recovery on 95 octane petrol on Monday was 93,043c/l, so consumers can expect further fuel price cuts in coming months.

It is impossible to forecast the future with 100% accuracy, but it is possible to sketch a future drawing on experiences of the past.

The retail petrol price in the accompanying graph is assumed to fall by a constant 30c/l per month from July to September before rising again by 10c/l per month to the end of the year.

This is because the lower winter demand in the northern hemisphere kicks in from October. There is greater demand for diesel in summer in the northern hemisphere, which is why the June cut was less than that of petrol.

The 2008 episode clearly illustrates the divergence between the two fuel types, which is why it is reasonable to assume that the diesel price will be cut further in the fourth quarter while the petrol price rises.

Oil prices were almost unchanged yesterday as another batch of weak euro-zone data and the dollar’s strength curbed demand expectations while supportive US service sector data limited losses.

Investors and analysts said price consolidation should be expected. They noted that price drops in the session did not threaten multi-month lows posted on Monday and that Brent crude has slid below $100 a barrel from a 2012 peak above $128 a barrel in March. "It has come off a long way, maybe now it’s time to consolidate," Jefferies Bache oil futures broker Tony Machacek said.







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