Oil Market Outlook

Business News - Monday December 17, 2007

Bangkok Post

Oil Market Outlook

West Texas Intermediate (WTI) prices showed a significant reverse trend at midweek on news of severe weather and the US and EU central banks' decisions to ease the credit crisis. An ice storm in the US Midwest temporarily shut down oil pipelines and fuel terminals, and dense fog caused shipping delays in the Houston Ship Channel, which connects to refining complexes in Texas.

In addition, the US Federal Reserve, the Bank of England, the European Central Bank and other major central banks moved to provide more liquidity to the financial markets by introducing short-term lending facilities, helping to reduce concern over an economic slowdown and hence lower oil demand.

The oil market currently is highly influenced by the deterioration of the economic outlook due to widespread credit crisis. Several economists are still sceptical that central banks can actually prevent the global economy from slowing down. Nevertheless, next week's US economic data, notably GDP and housing starts, might be bearish and again put downward pressure on the US dollar. This could provide a short-term boost for energy prices, but bearish fundamentals in the long run.

Asian gasoline markets remained strong last week with prices staying at around $97.70 a barrel, as China stood firm on its decision to cut exports this month. The Chinese plan to reduce gasoline exports by more than half to about a 100,000 tons in December due to the domestic fuel shortage. Furthermore, most refineries in the region are concentrating on producing more heating oil to meet peak seasonal demand for winter. Together with healthy demand, gasoline supply in Asia is expected to be tight throughout this month, and should continue to provide bullish fundamentals to the market for the coming week.

Nevertheless, the startup of a refinery in Taiwan, and expectations of more Indian cargoes into the region on weaker demand from the Middle East, should ease pressure on supply tightness from beginning of January onward.

Supported by robust demand from China, Asian diesel prices stayed firm at around $103.50 a barrel last week. China has imported more than 800,000 tons of diesel for December, the highest since 1999, to help relieve the domestic fuel shortage. Rising domestic consumption in Vietnam and an extended refinery shutdown in Pakistan should result in further diesel stock drawdown this week. However, uneconomical arbitrage on lower heating oil prices in the US and Europe amid high freight costs should help keep volume intact within the region.

Overall, strong demand from China and Vietnam ahead of the Lunar New Year holiday should sustain bullish sentiment in the market for the coming week.

Prepared by Thai Oil Plc