The Hindu Business Line : `Crude prices to persist at current levels till 2007'

PFC Energy, a global oil and gas consultancy firm, expects slight softening of crude oil prices next year. The forecast, however, may not hold good if geo-political tensions witness any major escalation.

"Based on current consumption patterns and global economic forecasts, we expect oil to remain near current levels through 2007. In fact, signs that the US economy is already beginning to slow down may lead to a slight softening of oil prices next year," said a PFC energy analyst working on global oil markets.

When asked about Goldman Sach's forecast of oil touching $100 a barrel by next year, the analyst said such a situation could arise only if geo-political developments spin out of control, resulting in heavy supply disruptions. "One such may involve the potential for military action in Iran", he said.

Talking on the immediate future, he said the production problems in Alaska, and even more directly the potential of hurricane-related outages in US Gulf Coast oil production might push WTI crude higher than current levels.

`Temporary phenomenon'

According to PFC Energy, the recent anomaly in Brent-WTI differential, arising due to sudden spurt in Brent to over and above WTI prices, is expected to be a "temporary phenomenon", related to maintenance taking place in the North Sea.

"As Nigerian crude is the easiest substitute for Brent in European refineries, the outrages in Nigeria have amplified the impact of seasonal maintenance schedules, causing Brent prices to rise above those of WTI," the analyst said.

The consultancy firm, however, foresees an increase in political violence in Nigeria ahead of next year's presidential elections. "Should this further impact Nigerian oil production, it may add further upward pressure to Brent prices, perhaps even re-emerging with a premium over WTI."

Denying any significant change in consumption patterns, he said that in view of the relative shortage of complex refinery capacity, there was a greater premium for light, sweet crudes - such as Brent - in comparison with the heavy, sour crudes. "We forecast that light-heavy differentials will remain wide through 2007."