Crude oil price
will remain volatile
THE PRESSURE of high oil and fuel prices throttling the economy is not likely to ease until the new year at the earliest, according to Tony Twine of Econometrix.
The outlook for any fuel is not particularly positive till year-end, he said, or even until February.
A number of recent events have combined to push prices to historic highs and to hold them there for the immediately foreseeable future.
First, said Twine, inventories were low in both Europe and the USA. This alone put upward pressure on prices and was added to by the Middle East troubles.
Given this scenario, he added, the oil market prices are behaving rationally. Buy as much as you can is the attitude, said Twine, regardless of the price.
He expects the crude oil price to remain above US$30 a barrel. And to be volatile, added Twine, moving by handfuls of dollars a day at times.
That's not likely to change until the end of the northern hemisphere winter and until the Mid East problems are sorted out, he predicted. And the timing of that second factor is a guesstimate.
On the local scene, domestic factors also play a part.
The rand/dollar doesn't look good at the moment, according to Twine. And
with the rand also moving unfavourably against the pound and the euro, it's not just dollar strength that's driving the rand lower.
He also highlights another outside factor which will have a major repercussive effect on SA fuel prices.
This relates to the import parity price, the measure against which all SA pump prices are determined. This in-bond landed cost is capable of giving false signals in SA, according to Twine, because of economic effects in Japan impacting on this country.
During the second half of the year, he said, and usually around September, you see the Singapore refineries gearing up for middle distillate fuel for Japan, the world's largest market.
This as demand goes up in anticipation of the winter.
This pushes a lot more crude oil through Singapore where the price determines three-quarters of the import parity portion of the SA pump price (the other quarter being the Bahrain price).
Also, said Twine, the Japanese demand is imbalanced. It's for diesel not petrol, so diesel prices are higher, and that's bad for the transport industry.
This can be added to an already ugly oil price.
And the domestic transport industry adds its own insult to this oil price injury, according to Twine.
It is worsened because margins in the SA transport sector are very poor in comparison to world transport industry norms, he said. And this poor old transport industry is going to have to absorb even more.
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