By Santhosh V Perumal
DOHA: Global oil prices may settle higher at $55-65 a barrel this year due to surging demand, especially from China, India and the US, implying yet another year of abundance for the GCC region, according to Global Investment House (GIH).
Though high oil prices could significantly contribute to the GCC states’ trade and current account surpluses, the region’s heavy dependence on oil “continue to remain a concern”, the GIH said in its latest report: ‘GCC Oil Sector: Green as ever’.
“Going forward, we believe that oil prices would remain in the vicinity of $55-65 a barrel during 2007,” it said.
Oil prices, which started dropping from the fourth quarter of 2006, reached a low of $49 a barrel in January 2007 but the situation in Iran changed the applecart, which saw the prices back to $60 mark in the first three months of this year, it said.
Noting that the oil market was again witnessing price increase due to the current situation in Iran, the GIH said such events had brought a lot of concerns for big importing countries as India, China and the US.
“Moreover, the Iranian situation will lead to further climb in oil prices, as it will be hard to match the production capacity disruption coming from Iran,” the report said.
In addition, there were concerns that strong global demand for oil could outpace supply though supply had surged in the face of the clamour for more oil, it said.
Though oil prices might remain high, it would not be at the “lofty” levels as seen in the last couple of years, it added. The world oil prices had touched $72.7 a barrel in August 2006.
The average Brent for 2006 was $63.40, higher by 19.7% from the previous year, while WTI (West Texas Intermediate) averaged at $64.60, higher by 16.9% over 2005.
Highlighting that “oil price anywhere above $40 a barrel is bound to ensure adequate liquidity in the GCC countries,” it said “the best of the times are here to remain (in the region) for at least some more years as portended by the global oil demand forecasts.”
Quoting a recent report of Opec (Organisation of Petroleum Exporting Countries), GIH said the world oil demand in 2007 was expected to grow by 1.5% or 1.2mbd (million barrels per day) to reach 85.37mbd.
The demand growth was expected to be from the largest importers of oil as such as the US and developing countries like China and India, it said, adding much of the world’s incremental oil demand was expected for use in the transportation sector.
“Strong demand, concerns on limited excess production capacity and fears of unplanned supply disruptions had kept prices high in recent months,” it said, adding the trend might affect the global economy.
Observing the higher demand from Asia, specifically China, it said the region’s strong oil consumption had shifted the pattern from the OECD (Organisation for Economic Cooperation and Development) countries, which “are no longer the growth driving factors.”
In 2007, according to GIH, China’s oil demand is estimated to grow by 6.25% to 7.5mbd despite its five-year plan of reducing the use of energy by 20% by the end of this decade.
Of the total demand in 2007, OECD demand would be 49.38mbd or 57.84% of the total world demand, while developing countries’ would be 23.68mbd (27.74%) and other region’s 12.31mbd (14.42%).
In the OECD, North America’s demand was likely to be 25.45mbd, Western Europe’s 15.40mbd and OECD Pacific’s 8.44mbd.
In the case of developing countries, the Asiatic region’s demand was expected to be 8.95mbd, Latin America (5.25mbd), Middle East (6.47mbd) and Africa (3.01mbd).
The report said the prevailing high oil prices would provide all the GCC economies with huge trade and current account surpluses though the “heavy dependence on oil continues to remain a concern especially when considering the sustainability of the growth in long term.”