>CRUDE OIL PRICE OUTLOOK 2010

REVIEW

An economy is measured by its GDP growth, which contracts or expands based on the potential activities in that economy. Those activities are classified in terms of operating work in the industrial discipline, the consumption by its citizens & the government spending in distinct affairs to stimulate the economy. However, apart from these classifications a macroeconomic view could be used to determine the economic endeavour in the economy; namely the crude oil consumption.

The trough phase which hit almost all economies in the world was portrayed by the slump in consumption of crude oil. The price on the energy complex witnessed a seesaw movement since 2008, due to faltering value in the US Dollar & escalating demand from China, aided the price to hit to a record level of $147 per barrel on July 2008. However, as global economy started to ail triggered slump in the global oil demand, therefore affecting its price, which hit a low of $32.4 per barrel at NYMEX.

The fall in demand was extended in 1st quarter of 2009, which reflected on crude price internationally, as it recorded a low of $36per barrel; a modest change from its previous year level of $32.4 per barrel. In the early of 2009 in March, the OPEC took steps to curb its supply levels to indemnify its losses, when price fell.

The demand of crude oil depends on the demand for heating oil & gasoline. These are the byproducts which has the most consumption. The demand on these products had stubbed, weighing on crude oil price, which traded at $37-$44 per barrel from January – April 2009. The lower prices forced refiners to shut their operations, especially in the 1st half of 2009, as refining cost had almost pared with wholesale prices.

With the revival of the US & Chinese economy in the 3rd & 4th quarter 2009, which posted better manufacturing & domestic growth, aided the crude oil price to rise towards $82 per barrel. Crude oil prices touched a high of $81.78 growing 127.61% from its yearly low & furthermore recorded growth of 77.94% for the year-to-date for 31st December 2009, since 2008.

The halt in refinery operations persuaded the prices to rise as reduction in supply of byproducts ensured rise in prices. The extension of demand dynamics came in from Asian countries such as China, South Korea, Japan & India which led the pack in 2009. However, one of the major reasons for the crude oil price to rise to over $81 per barrel was the slack in the value by the US Dollar. This shed almost 9% for the year 2009, as benchmark rates are dollar-denominated.

RECOVERY IN OIL PRICE IN 2009

The 152nd OPEC meeting hosted in Vienna in March 2009 was the 1st step adopted in order to elate the price in the energy sector, where the outcome of the assessment resulted into curb in the crude oil supply, which aided the price to ascend from its yearly low of $36 per barrel. The curb on the production quotas from the OPEC members were mainly, due to the slump in demand from the US, Europe and Japan which cut their consumption capacity substantially, especially in the US & Europe, as trough hit their industrial & manufacturing growth. The supply by OPEC was reduced at 800,000 bpd, which helped in lifting the price to over $50 per barrel.

During May-June 2009, economic conditions in China bolstered the growth in the price of crude oil, as major industry & service sectors aided in the GDP level to rise due to the reflationary measures adopted by the country. China, the 2nd largest consumer for crude oil in the world, extended its reputation of being a voracious consumer in 2009. It consumed more than 6% in 2009 from its previous year’s level; China consumed 33.35 Million metric tonnes of oil in June 2009, the highest monthly consumption in that year. The consumption was more than 2.6% from its previous corresponding month in 2008.

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