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Saturday, April 11, 2009

Everybody Happy With Oil Prices at $50

Friday, 10 April 2009

Oil prices will remain at the level of $50-$60 per barrel during 2009, according to the majority of analysts and investment banks. Yesterday was UBS’ turn to present its estimates for crude oil prices. The Swiss bank sets its target price for oil at $51 and this new estimate is lowered by 15% from earlier projections as the deepening global recession reduces demand for fuel. UBS analyst William Featherston still is slightly more bullish than the current consensus forecast of a $47/barrel price average for West Texas Intermediate (WTI) crude oil in 2009, down from $100 in 2008. The consensus view is more in line with the fact that current oil spot and futures on the New York Mercantile Exchange (Nymex) are averaging around $48 this week. “We now forecast 2009 global oil demand declines 2 percent, worse than our prior forecast of a 0.9 percent slide,” the analysts says in the UBS study. “Our forecast assumes that OPEC remains disciplined, and demand growth resumes in 2010 albeit at a subnormal rate.”
Crude oil prices have plunged more than 60% from a record $147.27 a barrel on July 11 as global economies have contracted in the largest recession since World War II. The lower demand for fuels has caused U.S. and global stockpiles to increase above their averages. OPEC has cut output by about 14 percent since September in an effort to halt the decline
According to a Bloomberg survey, Nymex traders this week are looking for $53/barrel crude oil this year, but analysts expect further slippage in spot and futures prices because an Energy Information Administration (EIA) report today is forecast to show U.S. stockpiles actually rose from a 15-year high last week. Looking ahead, Featherstone thinks WTI will average $58/barrel in 2010, down from an earlier estimate of $75, but that’s still higher than the $53/barrel being forecast by the EIA.
The level of $50 per barrel seems to be acceptable by OPEC members, at least for the time being. “Oil prices of about $50 a barrel are a “good thing” for now”, Algerian Oil Minister Chakib Khelil told Algerie Presse Service.
“If prices stay where they are, at about $50, or even drop a little, it will be a good thing because we should not forget that the global economy is shrinking,” Khelil told the state- run news service in Algiers yesterday.
The market continues to be oversupplied and the Organization of Petroleum Exporting Countries will decide at its May 28 meeting whether to cut production, depending on the state of the global economy, he said.
“If the economy strengthens by then, we won’t need to change the quotas,” he told the news service.