Oil to stay soft on weak US economy

Crude prices are expected to remain soft over the next two-three months on the back of the expected soft landing of the US economy and the rise in refining capacity expected to be announced over the next few weeks, according to analysts.

They said crude prices were likely to settle between $56 and 52 a barrel over the next three months. Vijay Bhambwani of BSPL India said, "Crude oil prices could settle around $54 a barrel over the next month and a half given that the US economy is expected to show a minor decline."

While this would not translate into immediate reduction in consumption, it would significantly reduce the 'terror premium' that was built into crude prices, he added.

The other factor that is expected to keep up the pressure on crude oil prices is the announcements that are expected on additional refining capacity that is coming onstream.

Bhambwani said starting with the Gulf of Mexico, many of the rigs that were damaged in hurricane Katrina two years ago were expected go back onstream this year. "This will increase capacity significantly and will, in turn, keep the pressure on crude oil prices," he said.

An analyst at the Multi Commodity Exchange said, "Some of the OPEC members such as Indonesia and Venezuela are expected to keep up their production levels despite the decision to cut down oil production, and this will keep the prices soft. The prices may go as low as $52 a barrel by December."

British shipping agencies are reporting increased shipping of crude oil despite the OPEC decision to cut production, he added.Analysts are also bearish given the forecast of a warm US winter. The US recorded temperatures 7 per cent lower in the first 10 days of November.

As a result, heating oil and natural gas demand for heating in homes and industrial premises is expected to come down. The rising stockpiles of heating oil in the US would also keep the crude prices soft, analysts said.