The FINANCIAL — Experts of Merrill Lynch, Invest Bank of USA, Deutsche Bank and IHS Global Insight presume that oil prices in 2009 will fluctuate from USD 35 to 50 per barrel. While Georgian experts and Dr. Samson Pkhakadze, Chairman of the Wissol Board of Directors, believe that OPEC’s decision will be the last say on the matter.
“Besides the official expectations of experts prices for oil in 2009 will be much influenced by the decisions of the members of OPEC. As OPEC’s shares in oil import in the whole world consist of 40%. In the case of reducing the import of oil by OPEC, the current unbalance will resume,” Pkhakadze told The FINANCIAL.
“On January 2, 2008, a single trade was made at USD 100, but the price did not go above USD 100 until late February. Oil broke through USD 110 on March 12, 2008, USD 125 on May 9, 2008, USD 130 on May 21, 2008, USD 135 on May 22, 2008, USD 140 on June 26, 2008 and USD 145 on July 3, 2008. On July 11, 2008, oil prices rose to a new record of USD 147.27 following concern over recent Iranian missile tests,” Pkhakadze says.
“Oil prices have witnessed a significant fall since July 2008, and have been trading around USD 40 a barrel on December 6, 2008. On December 24, 2008, oil prices traded at USD 35 a barrel,” Pkhakadze, Wissol, says.
“We should not expect a decrease in oil prices for 2009. This can be explained by fundamental reasons. The decreased demand on oil all around the world is higher than its supply by members of the OPEC union. These decreased prices on oil have been unprecedented since 1983. We must suppose that the restoration of balance on the market will take some time,” Pkhakadze declares.
“Oil prices as the prices for all tradable goods depend on demand. If the demand for oil products increases the prices will increase as well. At the moment it is difficult to predict the changes in demand as the global economical recession is still in progress”, Maia Chikvanaia, Head of the Sales and Marketing Department of Lukoil says.
“Changes in oil prices were caused by two subjective and objective reasons. Under objective reasons we can name the global financial crisis, which caused stagnation of industry throughout the whole world. As for subjective reasons the situation showed that it was in part due to unreal demands on oil and that the prices were not natural as a result. The fact that oil resources are getting exhausted makes us doubt that prices were fixed accidentally,” says Shalva Machavariani, Vice-President for Research Affairs, PhD, of Caucasus University (CU).
“When the demand by industries decreases, when supply from Iraq is stable, and there have been no explosions in this country for a long time, then the oil prices will have reached their real cost,” Machavariani added.
As for Akaki Kheladze, Head of the Management Department of CSB, CU, “The reduction of oil prices sounds paradoxical. As we know oil is an exhausting product and suddenly prices have started to decrease. We must presume that the oil price decrease was the result of political plays. We can’t explain it any other way, why the prices have decreased on products which are generally characterized with higher demand than supply. The decreased prices of oil might be the result of private countries’ or individuals’ decisions. Prices of oil have reached their lowest level for decades”.
“For 2009 we can’t expect huge changes in oil prices. According to economists the prices of oil shouldn’t change radically in the first two quarters of 2009. Experts forecasts will come true if there aren’t any subjective reasons, like the arrangement between hegemony countries. In today’s economy a lot of processes are made secretly. No one knows what kind of negotiations will be done between members of OPEC,” Machavariani noted.
‘It is always very difficult to predict the dynamics of oil prices as there are a number of factors that affect them. We can only make short term forecast (one month at most) assuming no changes in the world economy and suggest that prices will slightly fluctuate at the current level,” Chikvanaia, Lukoil, presumes.
Oil Price Pressure on the Car Industry
“Oil price changes influence everything. It’s a link in the chain. However oil price changes can’t put catastrophic pressure on car sales. The current situation in the car industry is the result of a global economical crisis. Maybe car and other industries have not survived the decrease of oil prices, but they would have if it were not for the global crisis,” Kheladze, CSB, CU, notes.
“Changes in oil prices directly influence the prices of oil products. We do not hold any data concerning direct adverse effect of increase in the fuel prices of any particular product. However these changes will affect the consumption behaviour of households and the average consumer basket will differ in the long run,” Chikvanaia, Lukoil, says.
“We do not have precise data of car sales in Georgia. However, we have not observed a negative correlation of the increase in fuel prices and car sales. As an example we can analyze the sales reports of local car dealers and the dynamics of fuel prices in 2007 and the first half of 2008. Despite the constant growth of fuel prices the sales of new cars were increasing significantly,” Chikvanaia, Lukoil, notes.
“The sales of heavy and commercial vehicles increased by an average of 40% in the first three quarters of 2008, followed by a sharp downfall in the last quarter as a result of the August war and the subsequent financial crisis. Prices in 2008 of heavy and commercial vehicles were greater than in 2007 by an average of 12%. However many retailers were forced to cut down their prices by the end of 2008 to sustain sales,” says David Cheishvili, Director of Tegeta Truck & Bus, Tegeta Motors.
“Changes in oil prices do not influence car sales,” says Goga Lomidze, Marketing Manager of Toyota.
But as Sulkhan Kuprashvili, Head of the Sales Department of Tegeta Motors, explains, “Cars and oil are linked and so the effect of oil prices is adequate: when prices in oil increase the demand for cars, especially trucks, decreases. Car sales are influenced by price changes in oil, tires and raw materials”.
“The heavy and commercial vehicle market is less sensitive to oil price changes; however it reacts sharply to interest rate fluctuations,” Cheishvili, Tegeta Truck & Bus, comments.
Oil prices are considered to have dropped because of the world economical crisis.
“In July, when prices of oil reached their peak, Director of General Motors, Peter Forster, blamed oil importers for the recession of car sales, but after changes in the oil market car sales did not modify. But of course this was caused by the financial crisis. If not for the crisis, cars sales would just skyrocket,” says Mariam Giorgobiani, Sales Manager of Hyundai.
“Overall the total number of sales increased but August’s events really interfered and consequently decreased the number of car sales by 5-10%. In some sense car sales depend on the bank and its position, whether it has a high interest rate. If the needs of customers and banks disobey each other then it straightaway influences car sales negatively,” Giorgobiani noted.
Contrary to what Giorgobiani says, Lomidze declares that Toyota won’t reduce the prices of its cars, “No decrease. We only had several discount campaigns of between 5 and 10%. Now usual prices have returned”.
Like Hyundai, Kuprashvili, Tegeta Truck & Bus says that, “Car sales and the reduction of their prices were affected by August’s events in Georgia and the world economical crisis. Cars are not products of absolute necessity. That’s why during the crisis, like in other force majeure situations, people abstained from buying them”.
“The decrease of oil prices will give the car industry an opportunity to look over their work and start producing cars equipped with new technologies. Car industries have started producing cars with a lower engine which uses a smaller amount of oil which is already widely used in Asian countries,” Machavariani, Caucasus Universisty, notes.
Written By Madona Gasanova