2.2 Risk Factors
2.2.1 Crude oil price is in the upward trend Crude oil price is likely to be higher than expected:
average oil price in the first five months of 2007 equal to 57.91 USD per barrel and 64.59 USD per barrel in
May. The oil price continued to increase due to a following reasons: (i) Increase of demand in summer during
the driving season (ii) Shut down of US refineries led to a decrease of US oil stock below the normal level
(iii) OPEC reduced the oil capacity by 1.1 million barrel per day since the third quarter of 2006 which led
to decrease of OECD oil stock about 1.1 million barrel per day.
For the rest of 2007, crude oil price is expected to be at high level due to supply shortage. In
May 2007, International Energy Agency (IEA) forecasted that world oil supply in 2007 will be 85.3 million
barrels per day, increasing from 84.7 million barrels per day in 2006. Meanwhile, the world oil demand will
increase from 85.1 million barrels per day in 2006 to 86.50 million barrels per day with a growth rate of
1.4 million barrels per day compared with an increase of 0.6 million barrels per day in 2006. More than half
of such demand increase in the world market will be from an increased demand in US and China while the
demand of OPEC countries also increase which account to 9.3 percent of the world demand, compared to 8
percent in 2002. This was resulted from higher income of exporting oil during the past few years which led
to a faster economic expansion. Moreover, oil demand of India also increases according to their high
economic growth which is estimated to account for 8 percent of the expansion of world oil demand.
- On 8 May 2007, Energy Information Administration (EIA) forecasted West Texas
Intermediate (WTI) in 2007 to be on average of 64US dollars per barrel, lower than 66 US dollars per barrel
in 2006. WTI price is generally 3-5 US dollars per barrel higher than the Dubai price.
- On 25 May 2007, referring to Global Weekly Economic Monitor by Lehman Brothers, the
Brent future price of 2007 is about 67.5 US dollars per barrel, increasing from 66.2 US dollars per barrel
in 2006. The gap between Brent and Dubai price increases to approximately 3-8 US dollars per barrel.
- Domestic retail price of benzene 95 increased from 26.49 baht per litre on January 1,
2007 to 30.39 baht per litre on June 1, 2007. The average retail price of high speed diesel oil increased
from 23.34 to 25.34 and to 23.34 baht per litre during the same periods.
Nevertheless, the government policy and measures on energy has improved the efficiency
of energy usage which result in a reduction of petroleum products by 5.3 percent in the first four months of
2007, even though, economic activities still growing. In addition, the consumption pattern has been shifted
toward gasohol which recorded 90 percent growth of daily demand in 2006 and 5.4 percent increase in total
demand during the first four months of 2007. Meanwhile, demand for benzene 95 has declined by 34 percent in
2006 and 20.3 percent for the first four months of 2007. Demand for high speed diesel also follows the same
trend as benzene 95 with 5.8 and 0.7 percent reduction during the same periods.
2.2.2 Slow down in private investment resulted from lack of investor confidence toward the
political situation and continuity of government policy after the election. Other reasons contributed to
lack of confidence are as follow: (i) Unresolved environmental problem in Eastern seaboard (ii) Delay in EIA
approval of private mega-project investment (iii) Construction and property sectors continue to slow down
due to the impact of high interest rate during the past two years (iv) Slow down in private consumption due
to higher oil price (v) Delay in construction approval of public sector which caused delay in construction
payment
2.2.3 Continually slowdown in consumer spending since last year, due to high oil price. The
spending still has signal of steadily slowdown in 2007 and apparently decline in durable goods, for
instance, vehicles, electrical appliances, and electronic products. That because consumers expect price
would be lower from downward trend of interest rate and wait for new models. Furthermore, there was an
adjustment of purchasing from a large increase in durable good purchasing in recent years.
2.2.4 Agricultural products’ prices showed a slowdown and will adversely affect farmer’s income,
particularly prices of rubber, corn and paddy. During 2004-2005, rising trend of agricultural prices
significantly supported farm income. Nevertheless, agricultural products’ prices in the world market in 2007
tend to slowdown as a result of large price adjustment during last two years. Moreover, world agricultural
production continues its normal trend.
(Continue to).../2.3 Key Assumptions..