Analysts: Oil prices may slide further in 2009

LONDON: Oil prices, which hit record highs above US$147 (US$1 = RM3.48) a barrel this year before plunging under US$33, risk slumping more in 2009 as recession curbs the world's appetite for energy, analysts say.

"We expect oil prices in early 2009 to remain under pressure given the weakening demand outlook and as global economies continue to slow," said Nimit Khamar, analyst at the Sucden brokerage in London.

"By the end of the second quarter, we expect prices should stabilise and find a floor, provided Opec can comply with their recent cuts and continue cutting output."

The crude market plunged in late December to reach the lowest points for almost five years as weak economic data around the world stoked concerns that a sharp global slowdown will ravage the market.

The Organisation of Petroleum Exporting Countries (Opec) oil producers' cartel, which pumps 40 per cent of the world's crude, is keen to prevent prices sliding further, as member nations look to protect their incomes.

However, Opec production cuts agreed in September, October and December have failed to stop the market sliding under US$33 earlier this month.

"Heading into 2009, we believe many commodity prices are set to overshoot to the downside in response to the worst downturn in economic activity since the Great Depression," added Deutsche Bank analyst Michael Lewis.

The market scaled record heights earlier this year on supply worries in key producing nations, sparking fears about runaway inflation globally.

But economists now fear that a plunging crude market will spark deflation - a prolonged drop in prices - that will further damage a global economy that is reeling from the impact of a credit crunch.

"2008 will go down as one of the most volatile and difficult years, ever for oil," said Peter Beutel, analyst at energy consultancy Cameron Hanover.

"It was a year that started with runaway prices and all the makings of the worst inflation in nearly three decades. It is ending with imploding deflation and the worst recession in seven decades," he added.

The market has plunged by as much as 78 per cent since hitting record heights five months ago, as traders fretted about the threat of a global recession - defined as two straight quarters of negative economic growth.

Recession has so far infected the eurozone, Japan and the US, while even Asian powerhouse China is experiencing slower growth as a global financial crisis takes its toll.

Major world powers have responded to the ongoing crisis with coordinated interest rate cuts and "stimulus" spending plans designed to lift their economies out of the doldrums.

US investment bank Merrill Lynch forecasts oil prices to average US$50 a barrel in 2009, as energy demand tumbles in the face of shrinking economic growth. - AFP