Oil price correction on the way, analysts predict

Surging fuel costs expected to weaken in short term as change in sentiment puts skids under speculation

By Rob McKay | April 13, 2011

There may be some respite on the way for transport operators struggling with the surge in fuel prices.

A bearish oil price forecast from investment bank Goldman Sachs appears to have given impetus to a softening in support for higher prices amongst international oil traders since Friday, which may filter through to prices after a lag up to Easter.

The new sentiment from speculators and Goldman Sachs analysts is that the uncertainty that had driven the price up - the Libyan conflict and Nigerian elections - is trending towards a more positive resolution, while on its home turf, Goldman Sachs says it saw "nascent signs of oil demand destruction in the United States".

Allied to that were statements from the International Energy Agency (IEA)
that prices above US$100 were hurting the world economy.

The bank predicted Brent crude would fall US$15 to US$105 in the months ahead as the correction took hold.

The Reuters newsagency says up to US$27 per barrel is attributable to speculators.

Increasing international oil-price volatility has made local
fuel buying a nightmare in recent months.

Twelve-week figures from the Australian Institute of Petroleum show that pump prices for diesel have risen from $1.36 a litre on January 23 to $1.55 on Monday, with terminal gate prices averaging about $1.45 yesterday in the eastern states.

Despite the possibility of a price contraction of sorts
this year, the US Energy Information Administration (EIA) forecast for the next few years is still for high demand and slow supply growth.

"Among the major uncertainties that could push oil prices above or below our current forecast are: the continued unrest in producing countries and its potential impact on supply; decisions by key OPEC member countries regarding their production response to the global increase in oil demand; the rate of economic growth, both domestically and globally; fiscal issues facing national and sub-national governments; and China's efforts to address concerns regarding its growth and inflation rates," the EIA says in its latest Short-Term Energy and Summer Fuels Outlook, released yesterday.

The EIA expects global oil demand to average 88.2 million barrels a day
this year and 89.76 million in 2012. Last year it was
86.68 million.

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