The Hindu Business Line : Crude likely to cool down on fall in US demand

Mumbai, Oct. 14 After touching historic highs in the third quarter this year, crude oil prices are expected to cool off in the short-term as US demand is likely fall after holiday season.

Further, monetary measures by the central banks of developing countries such as China and India to rein in inflation are expected to have a sobering effect.

NYMEX WTI index for the first time closed above $80 a barrel on September 13.

US economic growth is expected to weaken further having a spillover effect on emerging markets, moderating the demand for crude.

On a long-term, the crude demand is expected to be strong despite OPEC increasing production capacities. The International Energy Association estimates global oil demand to grow from below the average of 86 million barrels per day (bpd) in 2007 to 88 million bpd in 2008, a 2.5 per cent increase, accelerating from the annual rate of 1.7 per cent estimate.

On September 11, OPEC said it would increase supply by 500,000 bpd from November 1. Yet, with the growth in demand over the next 6-9 months, crude oil stocks are expected to tighten by next winter.

Flirting at $80

“Given the mismatch between productive capacity and demand, growth will remain for most of 2008, flirting more repeatedly with the $80 per barrel is likely to repeat itself again more durably in the first half of next year,” said a Karvy Comtrade research report.

World GDP growth, after registering in excess of 5 per cent in 2006 and still holding some steam, is expected to moderate in 2008. However, supported by emerging market, it will remain above the average 3 per cent historic trend level.

Total oil supply from the non-OPEC nations is expected to rise by 1.1 million bpd to 51.1 million bpd in 2008.

Karvy reports expect prices to trade on the lower bias in the near term with prices testing $76.60 and then $74 levels. On the MCX, “we recommend selling around Rs 3,145- Rs 3,180, targeting Rs 3,030 and then Rs 2,950 with stop loss above Rs 3,250 levels,” it said.

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