The deteriorating global economic outlook and weakening OPEC discipline could force oil prices as low as US$50 per barrel within the next year, analysts say. "We see both lower prices and a tighter range ahead but with increased risks," Lawrence Eagles, an analyst at the US investment bank JPMorgan Chase, wrote in a recent report. "Weaker economic growth, energy efficiency and [OPEC] intransigence provide downside risks.
"If demand drops, the Gulf Trio [of] Saudi Arabia, Kuwait and the United Arab Emirates, are likely to demand cuts from 'leaky' [OPEC] members to rebalance the market, but any delay in response risks a fall in prices [to] as low as $50 a barrel." Late last month, the bank cut its forecast for New York oil prices for the rest of this year by 5.5 per cent to $77.25 per barrel. It also lowered its price forecast for next year to an average of $79.25 per barrel from $90.
That move has been followed by a flood of bearish economic reports from the US, Europe and Asia. The gloomy data triggered a sharp fall in equities last week as the US dollar strengthened, which combined to send crude prices south. On Friday, crude dipped as low as $73.96 in New York as OPEC, Oman and Yemen cut exports to China on slowing demand. Crude's recent retreat from above $82 per barrel to the middle of the $70 to $80 range that has prevailed for much of this year followed a recent OPEC forecast of anaemic growth in global oil demand next year.
It also recalled an earlier warning from the International Energy Agency, which said that if economic growth next year were to fall one-third short of the IMF's most recent projection, then global oil demand would rise by an almost negligible 400,000 barrels per day. "Continued slow growth in oil demand is expected in 2011," OPEC said in its most recent monthly oil market report. "Recent projections assuming oil demand growth will return to pre-recession levels over the medium term would appear to be exaggerated.
"The modest recovery in demand coupled with higher than expected oil supply has led to a further build in stocks in recent months." The latest US employment data showed the world's biggest economy shedding 131,000 jobs last month as the private sector failed to make up for lower government hiring. Except for Germany, European economies are at best in a holding pattern, with several heavily weighed down by debt.
For its part, Beijing has been taking steps to cool the world's fastest-growing major economy. As a result, China's oil demand fell 5.6 per cent last month from the record set in June, Platt's estimated. tcarlisle@thenational.ae