ASEAN KEY DESTINATIONS
Oil price may rise to US$40-$60: Standard Chartered
Brunei: GLOBAL oil price is expected to recover to between US$40 (approximately $56) and $60 per barrel this year with the current supply glut anticipated to shrink, according to global bank Standard Chartered.
Fundamentally, the current price of US$30 per barrel is not economically sustainable, said Quan Lim, Investment Counsellor at Standard Chartered Brunei.
“Our own research team is expecting oil to go up to between $40 and $60 per barrel within this year. And that is based on their expectation that the current oversupply in the market will start to shrink,” he told The Brunei Times on the sidelines of a market outlook seminar last week.
Lim said while it remains unknown when oil prices will begin its rebound, he said at some point, “it has to rise”.
“I think what we’re going to see sometime in 2016 is that oil producers somewhere will start to exit from the markets because the prices are just way too low for them to make profits,” he said.
Eventually, he said, a fall in supply will consequently raise demand hence bringing the price of oil back up.
He admitted that while big oil producing nations might afford to do this, countries that are highly dependent on oil and gas or commodities for their source of income will go through a “tough period” ahead.
Citing Australia as an example, which has banked itself on the “China boom”, Lim said the mineral-rich nation’s economy has been hurt by China’s slowdown.
“So when we look at iron ore, a key raw material in steel production and one of its (Australia’s) key exports, when China started slowing down, you started seeing this adjustment in commodity prices, and that has hurt the Australian dollar, it is generating less revenue for the government while workers in the mining sector in Australia have to leave the job,” he said.
Oil and gas accounts for 90 per cent of Brunei’s economy.
During the market outlook seminar held last Wednesday, Evon Goh, Senior Investment Advisor at Standard Chartered Singapore in her presentation said the current supply glut needed to ease before oil prices could recover.
Insufficient storage capacity remains the biggest risk to oil prices in the short term but “likely” supply cuts are expected to improve demand and supply balance going through 2016, she said.
Oil prices fell on Monday after China and South Korea posted weak economic data, while fading prospects for a coordinated output cut by leading crude exporters also hurt the market, global news agency Reuters reported the day before yesterday.
Chinese manufacturing data indicated that the sector had contracted at the fastest rate since 2012 in January, putting more concerns on demand from the world’s top energy consumer at a time when the market is already weighed down by a large oversupply, it added.
Weak South Korean data also piled up the pressure, with exports down to levels last seen during the 2009 financial crisis.
As of press time, Reuters reported that front-month Brent crude was down 79 cents at US$35.20 per barrel at 0716 GMT, while US West Texas Intermediate was down 70 cents at US$32.92 a barrel.
Oil prices also came under further pressure from dimming prospects of a coordinated production cut by exporters like the Organization of the Petroleum Exporting Countries (OPEC) and Russia due to their differences, it added.
Standard Chartered Brunei held the seminar last week for its clients to share about the bank’s refreshed investment strategy amid challenging global markets.
With the investment environment poised to remain challenging in 2016, the bank recently released an investment framework – known as ADAPT – which is geared towards lowering risks and capturing key market forces currently at play.
Under the new strategy, investors were told to adapt to a changing landscape.
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