The KSE-100 index extended its rise yesterday, one that was solely backed by the oil and gas sector, after the EIAs short-term energy outlook report said it expects the global crude oil price to touch $89/bbl by December 2011.
The WTI crude oil touched the 26-month high on Monday when it crossed $90/bbl, giving rise to the speculations that the black gold could touch $100/bbl by the time the New Year starts. The EIA though, has not gone to that extent but has given an upward direction to the oil prices based on US recovery and strong demand from China and Brazil which is likely to continue in 2011.
What has fueled more optimism amongst oil investors is the upward revision in demand and price estimates by the EIA in just a months time. While global demand is expected to increase marginally, it is the supply side uncertainties and the dwindling inventory levels from record highs a couple of months ago, that have forced the EIA to revise the estimates upward to $86/bbl for 2011, up by $2/bbl from its previous forecast.
The recent deal struck by President Obama to extend the Bush-era tax breaks for another two years has led many investors to believe that oil is all set to cross the $100/bbl barrier, a level last achieved back in September 2008. The weakening dollar as the Irish austerity plans are in place has also played its part for short-term speculation.
On the fundamental side, the Opec meeting due in a weeks time will be crucial to determine the fate of oil prices for the near future. Market reports suggest that there might be key decisions taken to curb the oversupply of oil by some member countries as the production levels are down.
"At the moment, global oil prices have not increased in a real way compared to previous years. They do not consider the drop of the dollar in the calculations...the supply of oil at a price of $100 price is quite normal in the short term," Irans Opec governor said to the international media. He also shared his thoughts on how oil has fundamental reasons to enter the next territory beyond the $80/bbl, which was previously tipped to be the hub for oil prices for a longer period.
It is surely good news for a few companies in the energy sector if oil moves in line with the EIAs projections or even further.
But on the broader scale, Pakistan would least want the oil price stretch any further as many believe that oil price beyond $90/bbl could be catastrophic for Pakistan - the import bill would swell and with it the inflation, discount rate and so on and so forth. Certainly, not the best picture, is it?
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