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..