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Oil prices likely to remain in $45-60 range: analysts

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BS Reporter New Delhi

Crude oil prices are likely to remain at between $45-60 per barrel in 2009 as recessionary trends across the world have reduced demand, five analysts tracking the sector said.

Oil prices declined 27 per cent in the last week, its biggest weekly decline since the Gulf War 17 years ago. This was despite the Organisation of Petroleum Exporting Countries (Opec), supplier of 40 per cent of the world’s oil, announcing mid-week that it would cut production by a record 2.46 million barrels per day from January next year. This will take around 2.5 per cent of the world’s oil out of the market.

 

Prices dropped 22 per cent in two days since the announcement.

“Demand has clearly fallen. The production cuts announced by Opec will not really impact the markets much in the next year,” said a Mumbai-based analyst. “Oil prices will remain around the $50 per barrel mark for much of 2009,” he added.

The Chairman and Managing Director of India’s largest oil producer, Oil and Natural Gas Corporation (ONGC), had said in an interview earlier this month that oil prices were unlikely to go above $70 per barrel in 2009. “Demand has seriously been affected,” he had said.

World oil consumption next year will drop by 0.2 per cent to 85.68 million barrels a day, Opec said on December 15. The US Energy Department said on December 9 that global demand will decline 0.5 per cent to 85.3 million barrels a day, the steepest decline in demand in over a decade.

Opec agreed on December 17 to cut production by 2.46 million barrels a day starting on January 1. The 13-member group has called on other exporting countries such as Russia and Kazakhsthan to help it boost prices by cutting output. Russia and Azerbaijan had on December 17 also said it may cut crude oil production.

So far in 2008, global oil prices have declined 63 per cent. Prices hit their peaks in early July which led to high pressure on the economies of consuming countries such as India.

Prices have however tumbled by over 75 per cent from their July peaks as a financial crisis spread across the world. This crisis reduced demand for commodities including oil.

“When oil prices were high many economies could not afford to keep buying. This is a sense led to lower demand, and consequently lower prices. The economic slowdown pushed it further,” said an Delhi-based analyst with an advisory firm.

Industry watchers also say that US President-elect Barack Obama’s stated policy of supporting development of alternate energy sources will also impact oil prices. “At current crude oil prices developing alternate energy sources is no viable. But if the new US government subsidises alternate energy, and gives concessions, then companies will think about it,” said an official with ONGC.

Oil prices usually rise during winters when demand for fuel for heating homes rises in the US and Europe. However, this winter, prices have continued to be lower. “For oil producers, that’s the worrying sign. If prices are this low during winter, in the summers next year, it could fall further,” said the ONGC official.

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First Published: Dec 20 2008 | 4:51 PM IST

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