An increased supply of oil to the market is expected to lower prices in the coming year, according to Standard Chartered Bank.
“We expect the market tightness to ease during 2007, bringing oil prices lower overall. But further price spikes cannot be ruled out given ongoing political tensions,” said Helen Henton, head of commodity research at the bank, in a statement on Wednesday.
Overall, Standard Chartered expects the average Dubai spot price of oil to average $52 per barrel in 2007, down from $61/barrel last year. The price is expected to average as little as $50 a barrel in the second quarter of the year and rise to an average of $53/barrel by the fourth quarter.
Despite an expected modest slowdown in global growth, led by the United States this year, Henton says demand for oil is still expected to grow in the coming year.
“Demand projections for 2007 show growth accelerating for a number of reasons — lower prices, still robust growth, and, at the margin, increased demand from China as more appropriate domestic pricing encourages importers to supply the domestic market,” said Henton.
However, supply from non-Opec (Organisation of the Pertroleum Exporting Countries) members — including Russia, Azerbaijan and Brazil — is expected to outstrip this growth in demand during the year.
Opec, made up of 12 oil-producing nations, supplies about half of the developed world’s oil.
Late last year, the organisation met to cut output after the price fell below $60/barrel.
“We expect Opec to show sufficient resolve to prevent prices slipping below $55/barrel,” says Henton.
In 2006, Brent near term futures traded in a range between $57 and $78 per barrel.
Standard Chartered expects a medium to longer-term price level of $45 a barrel, according to the statement. — I-Net Bridge