Oil prices slide as world stocks grow

CAPE TOWN – International oil prices tumbled to 45-month lows yesterday as higher than expected US inventory data pointed to growing world oversupply, a situation which analysts said boded well for lower SA petrol prices and inflation.

Benchmark Brent crude fell below the $15 a barrel level yesterday, dipping as low as $14,78, for the first time since April 1994. This reflects a 32% fall since October last year, when the Brent price hit a high of $21,70.

The Dubai price, which is used as the benchmark to determine the in-bond landed cost to determine SA’s basic fuel price, dropped in sympathy to $13,18 from over $19,50 in October.

Prices have remained on a downward trajectory since October, fuelled by weak demand and fears of increasing supply from countries belonging to the Opec oil cartel.

Analysts said while the decline was bad news for crude oil producers, it was likely to have a positive effect on the SA economy and consumers through reduced diesel and petrol prices.

With fuel prices a key component in the consumer price index, where petrol holds a 4,1% weighting, the lower cost of imports would further filter through to the country’s overall inflation rate.

On the corporate side, oil production and exploration company Energy Africa was the only true SA crude producer and was therefore likely to suffer to some extent in a low oil price environment, with Sasol able to count on government protection.

The Energy Africa share was unchanged at R18,50 yesterday, while Sasol gained 35c to R42,25. Sasol had lost 865c or 17% in the three weeks before yesterday.

SBC Warburg analyst Themis Themistocleous said the question was whether the lower prices were sustainable. He believed the Brent crude price was unlikely to go below the $14 a barrel level for any sustained period. “At this price some of the oil fields become uneconomical, and it is inevitable that production levels will fall.”

Reuter reports that yesterday’s renewed price slide was triggered by weekly US statistics showing an unexpectedly large build-up of US crude inventories. The American Petroleum Institute showed a 14,6-million barrel rise in stocks in the week to January 16, putting inventories more than 32-million barrels higher than a year ago.

The big increase in crude inventories added pressure to a market already worried about mild winter weather in the northern hemisphere, rising Opec supplies and weakening Asian demand.

Further pressure came from suggestions that Iraq might be allowed to increase exports under the United Nations oil-for-food exchange.

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