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Oil slump to decrease price of fuel at pump

By unknown | Dec 17, 2008 | COMMENTS [ 0 ]

Lihle Mtshali and Reuters

Lihle Mtshali and Reuters

A drop in global oil demand next year will be good for local petrol prices, economists said.

This followed a warning from the Organisation of the Petroleum Exporting Countries (Opec) in its monthly oil market report that the first drop in world oil demand in 25 years will sharply lower the need for its crude next year.

The producer group said demand for its crude was expected to fall by an average of 1,4 million barrels a day next year.

It said, however, that the first half of the year would see an even steeper decline.

Chris Hart, an economist at Investment Solutions, said yesterday because the global economy was in such serious trouble, even if Opec cut production the cut would not be enough to boost the oil price.

He said: "At this stage production is not the problem. Demand that is falling off the cliff is the issue now."

South African motorists could expect a further drop in the local petrol price in January, he said .

"The petrol price will stabilise and start moving up in the second half of next year as the oil price rises," he said.

Oil prices would rise because of the recovery of emerging markets from the global financial crisis.

During that period, when oil prices will be going up, however, the rand will also be strengthening in line with other emerging market currencies, said Hart.

"Those oil prices and the stronger rand will be the right combination for South Africa," Hart said.

He said Opec was hoping for the fast recovery of emerging markets, which would help boost demand for crude oil.

Fanie Joubert, an economist for the Efficient Group, said a lower oil price was "nice for our imports and it puts less pressure on our current account deficit".

He agreed that world demand for oil would drop because global growth was expected to drop as well.

"Therefore, we are unlikely to see oil prices going up to the $140 a barrel like before, which is good news for South Africa because it means we won't be seeing a strong spike in domestic prices."

Opec is widely expected to slash production when it meets in Oran, Algeria, today.


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