Oil may rebound to average US$60 in 2009

NEW YORK: Oil futures may rebound from their worst year to average US$60 (US$1 = RM3.48) 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 per cent gain from Tuesday's US$40.02. A 14 per cent reduction in supply, equal to 4.2 million barrels a day, pledged by the Organisation of Petroleum Exporting Countries will erode US crude inventories that rose 10 per cent 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 realise that. By next summer this market should be turning around."

Crude futures averaged US$100 this year, the highest since crude 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.

TNK-BP, the Russian oil venture of London-based BP Plc, said December 11 it plans to cut investment next year and keep production "broadly flat." Saudi Arabia's 2009 budget has a deficit of US$17 billion as revenue at the world's largest oil exporter tumbles.

"A price extremely low today will mean prices very high three or four years from now," Paolo Scaroni, the chief executive of Eni SpA, Italy's biggest oil company, said in London on December 19. 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.

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.

"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," Caruso said, now a senior energy and security adviser at the Centre for Strategic and International Studies in Washington. - Bloomberg