(1.2) On the supply side there are capacity constraints on both upstream exploration and the downstream refinery industry. Currently, the industry has expanded their investment in order to raise its production capacity. However, new investment is estimated to begin its actual operation in 2012. Therefore, spare capacity that being ready to start operation within three months is currently at only 2-3 million barrel per day.
In the forth quarter of 2007, non-OPEC production is expected to rise by 0.6 million barrel per day combined with an additional of 0.58 million barrel per day by the OPEC plus Iraq and Angola. Consequently, total world oil supply in the last quarter of 2007 is estimated to be at 85.88 million barrel, higher than 84.68 million barrel in the same period of last year. World oil production in 2008 is forecasted to be 87.35 million barrel, above 84.80 million barrel per day in 2007 by 2.55 million barrel. In this respect, world oil production in the second half of 2008 is projected to be higher than in the first half according to seasonal factor. Total OPEC supply including Iraq and Angola is expected to be around 36.52 million barrel7, increase 1.63 million barrel while non-OPEC supply will be around 50.82 million barrel, up 0.91 million barrel8.
(1.3) OECD crude oil stocks are expected to remain below the normal trend. The crude oil stocks at the end of 2007 are expected to be at 2,550 million barrel which is lower than 2,678 million barrel at the end of 2006 and also less than 2,638 million barrel at the end of the third quarter of 2007. In 2008, crude oil stocks will continue to decline during the first quarter, before picking up during the second and third quarter. The last quarter, will see 2,556 million barrel in stock, seasonally picking up from the third quarter.
(1.4) Risks from geopolitical conflicts between the US and Iran, and also the political unrest in Nigeria, Iraq and Venezuela could put further upward pressure on oil prices.
(1.5) A continued weakening US dollar will encourage oil producing countries to maintain the oil prices at high levels in order to maintain income from oil export in local currency. Moreover, it builds up incentive for investors to invest and speculate more in the future market which will additionally put upward pressure on oil prices.
(2) There are risks associated with the world economic outlook and could render the world economy weaker than expected. They include:
(2.1) High and volatile oil prices
(2.2) The US economic slowdown could be more severe than expected if impacts of the sub-prime mortgage problem prolong in 2008 and generate significant spillover effects throughout the US financial market as well as the European market. Such development, if prevail, would cause volatility of financial market and further dampen US dollar value.
(2.3) Risks from geopolitics, particularly over the US and Iran conflict which would worsen oil price situation and also cause psychological effects.
4.3 Key Assumptions for 2008 Projection
4.3.1 The global economy is expected to grow by 4.5 percent, softening from 4.8 percent in 2007 with major developed countries leading the way. It is likely that the global economic outlook will be confronted by major risks including spillover effects of the sub-prime problem protracting in 2008, key currencies adjustment, implementation of the government policies for cooling down the emerging economies and inflationary pressure from the oil price upsurge.
4.3.2 Dubai crude oil price is projected to be in the range of 75-80 US dollar per barrel, a continued high level due to tightening oil market. However, it is likely that oil price will be leveled off in the second half following slowdown in global economy and stabilized level of US dollar as well as raising OPEC production.
4.4 Economic projection for 2008: 4.0-5.0 percent GDP growth with 3.0-3.5 percent inflation rate.
- In 2008, domestic demand, especially public and private investment are expected to expand stronger, in particular, in the second half of the year. Key investment projects includes, for example investment in mass transit railway system, automobile industry particularly those received special tax incentives for energysaving car (eco car and E20 car), electronics industry, ethanol production and IPP electricity generation projects. In the first 10 months of 2007, BOI approval projects totaled 538.1 billion baht, increased by 213.7 percent.
- A recovery in domestic spending and investment will counter the export slowdown and the increase in imports in response to investment pickup. Rising oil prices will pass on the effect to inflation which is expected to be around 3.0-3.5 percent. Unemployment is expected to be kept low at 1.5-2.0 percent. Current account surplus is expected to be around 8,000-10,000 millions US dollar.
- In 2008, it is likely to be the case that the Thai economy will grow at a higher rate than that of 2007. This is attributable to a pick up in private consumption and investment, increase in government expenditure according to higher budget deficit as well as progress of SOE investment in mass transit railway system, all of which would likely to offset export slowdown to some degrees. In addition, those investment projects received the BOI promotion in 2007 which are expected to be invested in 2008 are more broadly diversifying into SMEs such as those in food industry, ethanol and plastic products.
4.5 Projection conditions for high and low cases
4.5.1 The high case scenario of 5.0 percent. The economic growth in 2008 is likely to grow by 5.0 percent or higher under following conditions (i) Global economy expands by 4.0 percent or higher. Meanwhile, Thai export could adapt itself to be more competitive, under higher restrictions, with the expected growth of 10.0-12.0 percent and tourism receipts will expand around 6.0-7.0 percent (ii) The disbursement of public spending is not less than 85 percent of overall government and SOE investment budget. Priority should be made on speeding up budget disbursement of projects implemented for supporting lowincome people on their occupational development as well as infrastructure development, particularly on health care and social issues (iii) Improved consumer and business confidences after new government is set up which would stimulate household spending to recover back to normal trend and help business sector to expand their investment, especially those approval projects from BOI (iv) Oil prices starts to climb down during the second half of the year due to an increase in OPEC production quota, and average Dubai oil prices for the whole year not exceed 80 US dollar per barrel.
4.5.2 The low case scenario of 4.0 percent or below. The economy in 2008 will expand by 4.0 percent under the case of (i) Global economy slows down more than expected and shows lower growth than 4.0 percent. This could be a result of rapid increase in oil prices and protracted real estate market correction in the US. (ii) The disbursement rate of government and SOEs is below 80 percent (iii) Average Dubai oil prices is above 80 US dollar per barrel as a result of higher uncertainties from natural disaster, international political conflicts and OECD inventories levels are less than seasonal trend under supply constraints.
4.5.3 The possibility for the high growth scenario in 2008 is higher than the low growth scenario since (i) the assumption of world economic growth has clearly taken into account the slow down in Japan EU and China while the US economy stabilizes after significant slow down in 2007 (ii) oil price, in the assumption is high, compared to other sources of forecast. In addition, as the global economy is slowing down and the OPEC has a tendency to increase production, the possibility that oil price will be higher than the assumption is low (iii) investment is likely to pick up faster than expected, especially in light of the approval projects by the BOI which had significantly increased.
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