Oil prices may fall in coming years, Chinese experts

BEIJING -(Oilnews)- As world oil prices hit new high time and again at the beginning of April, Chinese experts called for a rational analysis of the trend and predicted that there might be fall in the next few years.

Since Goldman Saches, Wall Street famous investment bank, released the report predicting that oil prices may hike up to 105 US dollars per barrel in 2007, soaring oil price has aroused much tension not only overseas but also in China as the light crude hit 58 US dollars for the first time in the New York Mercantile Exchange (Nymex) last Monday.

The media have paid too much attention to the 105 US dollars price prediction made by Goldman Saches, said Shan Weiguo, director of petroleum economic and technological research center of China National Petroleum Corporation (CNPC), China’s biggest oil producer.

“The prediction of 105 US dollars per barrel is the maximum estimate made by Goldman Saches when there is an extreme event such as oil supply breaking. While Goldman Saches’ basic estimate was ignored by many media, which is 50 US dollars per barrel,” said Shan.

In view of the demand and supply conditions of the international oil market and the exchange rate of the US dollars, Shan said that the oil prices could drop to 30 to 40 dollars per barrel in two or three years.

“The tension between tight oil supply capacity and growing demand is still the determinant for the recent oil price soaring trend,” said Zhu He, professor with the economic and technological academy of the China National Petrochemical Corporation (Sinopec).

“Driven by global economic resurgence, oil demands have been growing while the yield capacity remains the same after years of low oil prices. As a result, oil demand and supply were put in such a fragile and tense state that even a tiny factor in politics,economy, military, terrorist attacks or gambling may result in sharp rise of oil price,” said Zhu.

Tan Yaling, a researcher with the department of global financial market, Bank of China, said that the continuing devaluation of the US dollars in global exchange market is another factor leading to soaring oil prices as oil is quoted in US dollars in the international market.

According to Tan, the current price of 55 US dollars per barrel just equals to 38 euro. “As the exchange rate of US dollars to euro was only about one to one in 2002 when the world oil price remained at a relatively low level of 20 to 30 dollars per barrel,the real markup for oil price is not so sharp as people thought,” she said.

Niu Li, economist with the Economist Forecasting Department of State Information Center, also said oil prices may drop to 30 to 40 dollars in a middle term.

According to him, stricken by both the soaring oil price and the global interest rate increases, global economic growth may slow causing oil demand to drop.

On the other hand, rising profits of the oil industry and high cost brought by soaring oil prices will lead to the expansion of oil production capacity, the development of new or substitute energy resources and the enhancement of energy use rate, said Niu.

With China’s entering the heavy chemical industry phase, the country saw a sharp rising demand for energy resources. China imported 120 million tons of crude oil in 2004, 32 percent higher than the year of 2003, with its dependency on imported oil rising to more than 40 percent.

The continuing soaring oil prices at the beginning of this yearhave already seen some effect on China’s import.

According to statistics made by the General Administration of Customs, in January and February of 2005, China paid 5.44 billion US dollars for importing crude oil, 11.6 percent higher than the same period of last year while the imported volume was 18.17 million tons, 12.7 percent lower than the same period of last year.

“The age of low oil price is over. It is due to have a deep effect on China’s economy,” said Zhu He.

There are many high-energy consumption industries in China and its economy is still growing in an extensive way. Characterized by simplistic trading way and inflexible pricing system, the country’s oil market system is immature.

“The soaring international oil prices will boost the country’s foreign exchange expense, hoist transportation cost and prices of raw materials such as coal and electric power. Those are due to intensify the inflation pressure of China,” said Niu.

“Furthermore, although soaring prices will slower economic growth to some extent, the sharp rising oil prices will increase the difficulty of macro-economic control, which is being taken as an important measure by the state government to cool its heating economy,” said Niu.

But Shan Weiguo think the international oil price soaring trendis an opportunity for China to transform its economic growth way and to improve its oil market system.

“After all, oil is a commodity and its allocation should dependon regulation of the market,” said Shan.

The Law on Renewable Energy, aiming to boost development and use of renewable energy resources, was approved by the National People’s Congress (NPC) Standing Committee in February and will go into effect on January 1, 2006.

Source: Xinhua

Oilnews.com.cn (no direct link possible – see news article of April 12, 2005).