SG bearish on crude oil, product price in Q4

Updated: 2012-10-31 06:32

By Sophie He (HK Edition)

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The prices of crude oil and products is set to drift lower through the fourth quarter and the first half of next year, as the fiscal headwinds in Europe and the US will weigh on the global economy leading to weaker demand, according to Societe Generale.

"For (the) near term, we are actually bearish on energy (prices), particularly oil and products, as the demand growth is moderate and the supply is sufficient right now," Jeremy Friesen, commodity strategist at Societe Generale Corporate and Investment Banking, told a press conference on Tuesday.

The company believes that the eurozone's GDP growth will be -0.4 percent for this year and -0.1 percent for 2013; while the US economy is expected to expand at 2.3 percent and 1.8 percent for 2012 and 2013, respectively.

The stall-speed economic growth (which is the critical growth rate below which an economic upswing turns first into a period of much slower growth) in the Europe and US is likely to set the ceiling for prices of oil and products, said Friesen.

Meanwhile, the oil supply from non-OPEC countries has increased significantly, Friesen said, but warned that OPEC countries may trim their crude oil supply to defend the oil price.

Friesen sees the ICE Brent crude oil price decreasing to $103.3 per barrel in the fourth quarter of this year from the latest price of $109.6 per barrel; and for the first and second quarter of 2013, the oil price is expected to further drop to $102.5 and $97.5, respectively.

BOC International also issued a report on Monday saying that it sees the crude oil price continuing to come under pressure in the near term as a result of weakened demand.

The company believes the room for the crude oil price to drop is limited, due to the US presidential election, the impact from Hurricane Sandy as well as geopolitical risks.

Although Societe Generale is bearish about energy prices, it is relatively bullish about the price of gold.

Friesen said that thanks to the QE3, the gold price is expected to reach $1,750 per ounce before the year end from the current level of $1,711.

But he pointed it out that the stronger US dollar is offsetting the affect of bullish real interest rates, while the slower economic growth in both India and China is affecting gold demand, which is all bad news for gold price.

Friesen sees the gold price falling back to $1,750 and $1,700 per ounce in the second and third quarter in 2013 respectively, after it surges to $1,800 in the first quarter of next year.

sophiehe@chinadailyhk.com

(HK Edition 10/31/2012 page2)