Brent crude will stay “well above” $100 a barrel in the second half of this year on China’s oil demand growth and reduced supply of high-quality grades, according to Mirae Asset Securities Ltd.
China consumed more than 9 million barrels a day of fuel in May for a seventh month and will probably delay domestic fuel-price increases to tame inflation, said Gordon Kwan, Mirae’s head of regional energy research in Hong Kong. Brent futures have averaged more than $111 a barrel in London trading so far this year, from $80.33 in 2010, beating the broker’s full-year forecast of $100.
“Bullish economic headlines in China have vindicated our conviction call for a soft economic landing, which bodes well for sustained higher oil prices,” Kwan said in an e-mailed note today. “Brisk demand persisted even though growth in the world’s largest energy-consuming country is slowing.”
Brent has rallied more than 20 percent this year as an uprising against Libyan leader Muammar Qaddafi disrupted supply from the country, holder of Africa’s largest crude reserves. China on June 14 said industrial production rose 13.3 percent in May and inflation climbed 5.5 percent, the quickest pace since 2008. Brent contracts on the London-based ICE Futures Europe exchange, which topped $127 a barrel in April, traded today near $114.
Brent has risen on Libya’s unrest and reduced production of high-quality crude in the North Sea, and as Royal Dutch Shell Plc halted shipments of Bonny Light from Nigeria, according to Mirae. This will favor so-called “complex” refiners in South Korea and India that can process lower-quality grades pegged to other crude benchmarks such as Dubai, including S-Oil Corp. and GS Holdings Corp., it said.
China, which subsidizes domestic fuel prices, will need to raise prices by about 20 percent this year to maintain a 5 percent profit for refiners assuming Brent averages $100 a barrel, Kwan said. The country, which was reported to have boosted jet-fuel prices last month, is “behind the curve” in increasing rates, he said.