After surging to a record $55,67 per barrel on October 25, the New York Mercantile Exchange near-dated oil futures price has fallen below $50 per barrel and is currently trading at $49,13 per barrel, meaning that the South African Reserve Bank (SARB) monetary policy committee meeting on December 8 and 9 could once again look at a further interest rate cut.
This fall in oil prices will be reflected in a cut in the retail petrol price on December 1 after being raised by 14 cents per litre (c/l) on October 6 and a further 17c/l increase on November 3. The December cut could reverse both the October and November increases.
This would mean that the quarterly average for CPIX (consumer inflation excluding the effects of home-loan rate changes) would stay near 4% tear-on-year (y/y), dropping to the 3,5% y/y level in the first quarter next year, from 3,9% y/y in the third quarter of 2004 and 4,6% y/y in the second quarter of 2004.
In its semi-annual Monetary Policy Review released on November 4, the SARB said its central forecast for CPIX is a trend of about 4% this quarter and the subsequent two quarters before rising to 5,8% y/y in the third quarter of 2005 and a slight easing thereafter, but should not breach the 6% y/y upper limit.
The SARB inflation target range is from 3% to 6% y/y, and nine out of the past 11 releases were below the mid-point of the SARB’s target range. The exceptions were February, when the rate was 4,8% y/y, and June, which was 5% y/y.
The SARB cut by 550 basis points last year and there was a further surprise 50 basis-point cut announced on August 12.
The oil market and Organisation of Petroleum Exporting Countries (Opec) expect crude prices to remain below $50/bbl early next year, as elections in Iraq, planned for January, are expected to be smooth, while the security situation seems to be improving with Iraq reaching its best production since 2000 at 2,5-million barrels per day.
Increasing supply will meet declining global oil demand in the second quarter of 2005, as heating oil demand is expected to ease during spring in the northern hemisphere.
Some analysts said that with more and more storage tanks of heating oil filling up, there is now a potential for a supply glut and a further downward pressure on oil prices. — I-Net Bridge