Thursday April 14, 2011
PETALING JAYA: Crude oil prices saw a setback yesterday after the International Monetary Fund (IMF) lowered its growth estimates for Japan and the United States.
Analysts said the move by the IMF renewed doubts on crude oil demand and the strength of global recovery. It also indicated that the recent rise in price had undercut demand.
They said investors were also expecting lower demand in Japan in the aftermath of the earthquake, the tsunami and nuclear crisis. Japan had raised the severity rating of the crisis at its nuclear plant to the highest level, on a par with the 1986 Chernobyl disaster.
“Selling pressure also intensified after the International Energy Agency (IEA) warned prices above US$100 a barrel have hurt global demand for energy and Goldman Sachs urged investors to cash in their commodity bets,” an analyst said, adding that oil prices had been due for a correction.
“Oil prices have retreated in the morning, in response to the news that Libyan leader Muammar Gaddafi had signed peace talks towards ending the civil war in Libya,” an analyst with a local brokerage said.
Oil prices have risen tremendously on heightened concern over the potential for oil supply disruptions in the Middle East and North Africa.
At 5pm yesterday, oil for May delivery fell as much as 88 cents, to US$105.37 a barrel on the New York Mercantile Exchange, the lowest price since March 31.
MIDF Research chief economist Anthony Dass expects some stablisation to oil prices by the end of second quarter.
He said the IMF had not revised the world growth of 4.4% and believed the slump in crude oil prices was just a “short breather.”
“It is just a trading correction. The fundamental have not changes,” he said, adding that the uncertainties in the Middle East could come to a tail-end by the second half.
Dass said the reconstruction had not started in Japan and demand could pick up in the second half when Japan began its reconstruction works.
The research house expects oil to average US$105 a barrel on the high side for the rest of the year or US$95 per barrel on conservative estimates.
Early this week, both the IMF and IEA said the economy was starting to feel the pressure of high oil and commodity prices.
In a report on the world economy, the IMF said that commodity prices had increased more than expected and noted risks to the recovery from additional disruptions to oil supply.
On Tuesday, Reuters quoted IEA head of the industry and market division David Fyfe as saying that the agency had noticed slowing demand trends in the US and Asia Pacific.
“There's been a marked slowdown since autumn last year. China is looking a bit slower. Thailand and Malaysia have seen a bit of a slowdown.
“We are quite early in the cycle, we have only been above US$100 a barrel for the first quarter. We would expect sustained economic effect from prices to take six to 12 months to feed through.”
Meanwhile, members of Opec with spare capacity in March increased output to help compensate for output disruption in Libya.
Opec blamed the high oil prices on speculation rather than shortage of oil. It emphasised that inventories were still above the historical trend.
http://biz.thestar.com.my/news/story.asp?file=/2011/4/14/business/8478335&sec=business
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