BRINK OF WAR: Expert foresees no freefall in oil prices. $60/barrel possible if war escalates
www.bangkokpost.com Post reporters
Oil prices in the international market will not decline as quickly as they did during the 1991 Gulf war, according to energy expert Piyasvasti Amranand.
The government has also confirmed that its current legal oil reserve requirement was adequate to cope with the current situation.
Crude prices in London and New York fell by 10% yesterday after President George W. Bush's ultimatum to Saddam Hussein appeared to end uncertainty about a strike on Iraq.
Dr Piyasvasti said world oil prices were likely to decline no matter how long the war lasted, as long as the battle was confined only to Iraq. Still, prices would not drop considerably and swiftly as in 1991, he added.
The recent increase in oil prices was due partly to a falloff in production in Venezuela due to political strife and constraints on the Organisation of Petroleum Exporting Countries (Opec) in increasing production to offset the two million barrels per day previously supplied by Iraq, said Dr Piyasvasti, chairman of the Energy for Environment Foundation.
In 1991, Opec raised its production to substitute for oil supplied by Iraq and Kuwait. At the time, fuel consumption had also fallen just before the start of the war. Oil prices fall sharply once hostilities broke out.
Dr Piyasvasti cautioned that if the current conflict escalated, oil prices would rocket.
``Crude oil prices could soar to as high as $60 per barrel, if the war dragged on and spilled over to Iran, Kuwait and Saudi Arabia,'' he said.
Such a case would put local retail petrol prices to as high as 30 baht per litre, or nearly double current prices.
Dr Piyasvasti said oil prices could drop to $25 per barrel if the situation in Venezuela returned to normal and other Opec members were able to raise production to substitute for the shortage of oil supplied by Iraq.
Crude oil prices currently range from $30-35 a barrel, premium petrol is $40-43 a barrel, diesel is $40 and fuel oil $30.
While petrol market prices is 19-20 baht a litre, the government has capped prices at 16.99 baht for premium petrol.
Dr Piyasvasti said current oil prices would be reflected in power bills in the next eight months.
``If the fuel oil price increases 100% to $35 a barrel, natural gas prices at power plants will raise by 33% to 200 baht per million BTU (British thermal units) from 150 baht, resulting in a 12% increase in power bills,'' he said.
However, Energy Minister Prommin Lertsuridej said world oil prices were now under control on expectations that a US-Iraq war would not last long.
He said the country's oil reserve was confirmed as adequate at 60 days. ``We have not found it necessary yet to raise the legal requirement of oil reserves.''
A source at PTT Plc said the company had oil supply agreements with producers outside of the Middle East. In addition, the company had ordered 65 million litres of diesel to add to its commercial reserve, and was reviewing its procurement plans twice a week.
According to the Bank of Thailand, each increase of $1 a barrel in Dubai oil prices would raise the country's import bill by $62.5 million per quarter.
But analysts expect the overall impact to be short-lived, noting oil prices yesterday dropped after the 48-hour deadline was announced.