Oil futures may rebound from their worst year to average US$60 a barrel next year as OPEC makes record production cuts to counter the deepest economic slump since World War II.
The forecast, the median of 33 analysts compiled by Bloomberg, represents a 50 percent gain from Monday's US$40.02 closing price. A 14 percent reduction in supply, equal to 4.2 million barrels a day, pledged by the Organization of Petroleum Exporting Countries will erode US crude inventories that rose 10 percent this year as the slowing economy reduced world demand for the first time since 1983.
While oil tumbled from a record US$147.27 in July consumers in the US, Japan and Germany faced their first simultaneous recessions in six decades. The plunge risks curtailing investment in new rigs, refineries and alternative energy sources, setting the stage for a supply crunch later on.
"Once we get through the crisis, we will find that support is higher than US$40 a barrel," said Sarah Emerson, managing director of Energy Security Analysis Inc in Wakefield, Massachusetts. "The decline in demand has already occurred. A lot of analysts were late coming to realize that. By next summer this market should be turning around."
Crude futures averaged US$100 this year, the highest since oil began trading on the New York Mercantile Exchange in 1983. Oil plunged along with commodities from copper to corn in the second half as world economies slowed in the credit crunch caused by US$1 trillion of losses and writedowns at the world's biggest financial companies.
Crude oil for February delivery fell as much as 94 cents, or 2.4 percent, to US$39.08 a barrel in electronic trading on the New York Mercantile Exchange. It was at US$39.33 at 11:30 am London time.
Corn is down 46 percent since June 30 on the Chicago Board of Trade, and copper 67 percent on the London Metal Exchange.
TNK-BP, the Russian oil venture of London-based BP Plc, said on Dec 11 it plans to cut investment next year and keep production "broadly flat". Saudi Arabia's 2009 budget has a deficit of 65 billion riyals (US$17 billion) as revenue at the world's largest oil exporter tumbles.
Royal Dutch Shell Plc, Europe's largest oil company, has postponed an agreement on extending its Athabasca oil-sands project in Canada and also delayed a plan to develop a US$3.5 billion coal-to-liquids project in Australia.
OPEC cut pledge
Analysts expect oil prices to rise through the year to US$70 a barrel in the fourth quarter as demand improves and OPEC production curbs announced this month take hold. The US economy may return to growth in the second half of 2009, reviving consumption in the world's largest energy user.
OPEC pledged on Dec 17 to reduce production from 11 of its members to 24.845 million barrels a day. The group may meet again before a scheduled March conference if prices keep falling, Venezuelan Energy Minister Rafael Ramirez said on Dec 23. Prices rallied on Monday after Israeli air strikes in the Gaza Strip raised concerns that Middle Eastern oil supply may be disrupted.
Nymex futures prices for 2009, also known as the forward curve, indicate a shallower recovery than analysts are predicting. The so-called 2009 strip, or average of the 12 monthly contracts, is trading at about US$45 a barrel.
Goldman Sachs Group Inc and Deutsche Bank AG, which predict US$45 and US$47.50 for the 2009 average, also say prices may slide to US$30 or less before rebounding.
"The main determinant of oil prices next year will be how deep is, and the duration of, the economic downturn," said Guy Caruso, who was administrator of the US government's Energy Information Administration from 2002 until September.
"OPEC is trying very hard to stop the bleeding but it is chasing after something it can't control, another year of falling demand," said Caruso, now a senior energy and security advisor at the Center for Strategic and International Studies in Washington.
OPEC and the US Energy Department estimate oil demand will fall in 2009, after slipping this year. The International Energy Agency expects an increase, forecasting a 0.5 percent gain to 86.3 million barrels a day.
"All of the things that sent prices soaring have turned around," Adam Sieminski, Deutsche Bank's chief energy economist in Washington, said in a Dec 22 interview.
(China Daily December 31, 2008)
