Crude oil prices will remain within the $80-$100 range for much of this year, underpinned by a favourable global monetary environment and a tightening oil market. This is according to special report released today by Standard Bank Group at the International Petroleum Week conference in London.
The forecast comes as the price of Brent crude earlier this month shot through the 28-month record high of $100 due to political uncertainty in North Africa and the Middle East, and amid concerns about the effect of high prices on the global economy. The report says the global monetary environment will continue to favour higher commodity prices in 2011, despite the build-up of inflationary pressures in large economies.
The report was researched and written by Standard Bank Group's commodities experts James Zhang, Walter de Wet, Marc Ground, Jeremy Stevens and Simon Freemantle.
It states: "While inflationary pressures are building in large economies, such as China, Europe and the UK - mainly due to cost-push factors - real interest rates remain very low. We also believe that the Fed's quantitative easing is an attempt to weaken the dollar against local goods and services - including commodities. After all, that is what creating inflation (or preventing deflation) is all about: devaluing your currency."
"Fundamentally, the oil market today is very different from that at the beginning of 2008, with high inventories, OPEC spare capacity and refining spare capacity. Nevertheless, oil prices continue to rise, helped by loose monetary policies implemented by many central banks. We expect this to continue into 2011."
The report also forecasts that new oil reserves being found in Africa will become crucial to meeting future global demand. These discoveries have been driven partly by China's rising demand. It says dwindling supply from the traditional oil-producing countries has already seen Africa's new oil sources increase in value, and the continent now holds the key to meeting increased future global demand. Africa, already a major source for oil exports to China, has shown huge potential in oil reserves and future production. According to the report, Chinese demand and African production will play an increasing role in the shaping of global oil markets in the years to come.
Continuing growth in demand from China is expected to drive African oil production. While China's oil production could remain stagnant, its demand could double to 17-million barrels per day (mbd) by 2030 - largely owing to surging transport-related demand. China's oil imports are forecast to increase from 5-mbd in 2010 to about 7.5-mbd in 2015 and 13-mbd in 2030, with Africa supplying a major portion.
Africa's proven oil reserves have grown since 1989, spiking from 59.1-billion barrels to 127.5-billion barrels, an increase of a 116%. Africa's net oil exporters include Algeria, Angola, Cameroon, Chad, Democratic Republic of the Congo (DRC), Republic of Congo, Equatorial Guinea, Gabon, Libya, Nigeria and Sudan. Of these countries, Libya, Nigeria and Angola hold the largest proven reserves.
Considering other African oil producers is proving increasingly important, particularly with new oil finds in countries such as Ghana and Uganda. Other African countries were deemed to hold cumulative proven reserves of about 600 million barrels, which is already said to be understated. Somalia, alone, is estimated to hold reserves of around 4-billion barrels. The list of new and emerging producers currently includes Ghana, Kenya, Liberia, Mozambique, Niger, São Tomé and Príncipe, Sierra Leone, Somalia, Tanzania and Uganda.
"Fast-growing emerging markets have been the most ambitious in unlocking these opportunities. Unsurprisingly, China has led the charge into Africa," says the report. "It is clear that the convergences between China and Africa are meaningful and structurally robust. As it has done since the turn of the century, China will increasingly look to position itself as Africa's premier partner as it seeks to unlock new sources of crude oil."
Standard Bank Group econonic research papers are available on http://ws9.standardbank.co.za/sbrp/LatestResearch.do.
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