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Baht/$ 34.57/62 (Bid/Ask)
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13,100
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With Hurricane Gustav causing only minor damage to oil production in the Gulf of Mexico, West Texas Intermediate fell more than $9 a barrel from a week earlier to close on Friday at $106.23. Concerns over a growth slowdown in global energy demand and the strengthened US dollar pressured crude prices down.
Energy companies with a presence in the Gulf of Mexico resumed production last week after the storm had temporarily shut down 25% of US output and 15% of total refining capacity on Aug 31.
The dollar rose to its highest level this year on mounting expectations that the Euro zone economy would underperform that of the US. Last Thursday, the European Central Bank revised down its economic growth forecast in Europe to a range of 1.1% to 1.7% in 2008 from the earlier forecast of 1.8%. In addition, the European Central Bank and the Bank of England decided to keep interest rates unchanged at 4.25% and 5% respectively, as they cautioned that inflation would remain high. However, market still anticipates that the ECB may need to cut interest rates by the end of the year to energise economic growth.
Softening energy demand is expected to push crude prices further down this week. The dollar's rally will discourage fund movements into the energy commodity market. Hedge funds will continue to sell off commodities as investing in the energy market remains less attractive. This is supported by news on Thursday that the investment firm Ospraie Management closed its biggest hedge fund after it lost nearly 40% due to sharp drops in commodity stocks.
Without the threat of storm-caused disruptions, all of the above elements will drive crude prices down by $5-10 a barrel. But prices below $100 a barrel are unlikely as market believes that Opec will cut its oil output when it meets tomorrow in order to keep prices in triple digits.
Gasoline prices in Singapore fell sharply by nearly $10 a barrel and closed at around $107 on Friday, driven mainly by falling global crude prices. The gasoline market, however, appeared to be firm on the basis of larger-than-expected imports from Indonesia. Indonesia increased its September imports to meet higher demand ahead of Ramadan and to offset output losses when its major refinery closes for maintenance next month. This strong Indonesian demand should lend support to gasoline prices this week. In addition, the market is eyeing the US hurricane season as more storms could affect output, opening up arbitrage opportunities to move excess supply from Asia to the US West Coast.
Waning demand in China, Indonesia, and Vietnam continue to weigh down diesel market sentiment. Diesel in Singapore closed at around $121 a barrel on Friday, down from $129 a week earlier. China, the biggest diesel consumer in Asia, suspended its imports in September for the first time in several months as current stocks are at a comfortable level. On the other hand, diesel demand in India continues to surge this year, notably for power generation, with growth of 18% in the April-July period. At the same time, the market is monitoring opportunities to move ultra-low sulphur diesel to Chile this week.
The near-term outlook for diesel is forecast to improve, supported by seasonal stockpiling for winter in the northern hemisphere. In addition, it is anticipated that Chinese demand will recover soon as its government plans to cut taxes and enhance spending up to $60 billion to ensure post-Olympics economic growth.
Prepared by Thai Oil Plc
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