Money
Issue No. 32 - December/January
How high can the oil gusher go?
by Mr Marcus Campbell
The structural shift up in global commodity demand, on the back of China growth and rising per-capita incomes across the high population regions of the world, remains a compelling investment theme for the medium term. On that basis, we remain comfortable for long term-oriented investors to retain overweight positions in the major resources and energy stocks.
Nonetheless, we acknowledge that short-term sentiment on commodity prices - including the oil price - will likely remain subdued on the back of investor concerns about a slowing US economy and, in turn, slowing global growth expectations.
Early in the year, we were being told that crude oil was a scarce resource. Six months later, crude oil is in excess supply, the price is falling (see Figure 1) and OPEC is looking to cut production.
The fact that supply-demand tension in the oil market may be easing ahead of market expectations may prove to be an indicator of how fundamentals in other commodity markets will unfold over the next 12-24 months.
Although the absence of supply disruptions has been a big factor in the decline of oil prices since early August, it is also evident that global demand has been tempered.
Our oil price assumption is for oil to average US$71 per barrel for the June half 2007 before averaging US$61.50 per barrel for the December half 2007. While the oil price has weakened compared to recent highs, we believe the oil price will increase as the northern hemisphere winter arrives and increases the demand for heating oil.
Past performance is not a reliable indicator of future performance.
An update on SA Company activity
Santos (STO)
Santos recently announced that September quarterly production was 16.6 million barrels of oil - ahead of our estimate and predominantly driven by gas production at John Brookes, but also by smal...
