<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Oct 2, 2008
</TR><!-- headline one : start --><TR>Oil may fall to US$50 <!--10 min-->
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<!-- START OF : div id="storytext"-->CRUDE oil prices may fall as low as US$50 (S$72) a barrel next year, about half current levels, in the 'unlikely' event of a global recession, weighing on shares of petroleum producers, Merrill Lynch said.
According to Bloomberg news, such a scenario, where global growth in Gross Domestic Product falls to 1.5 per cent, isn't the base-case forecast, the bank said on Tuesday in a report.
Merrill cut its 2009 average price estimate for West Texas Intermediate, the US benchmark oil grade, by 16 per cent to US$90, citing falling demand and the start of new fields in Organisation of Petroleum Exporting Countries.
Crude oil future prices have fallen almost a third in New York since reaching a record US$147.27 a barrel on July 11, driven by concerns a worsening financial crisis in the US is crimping energy demand. US oil use is declining faster than expected, while European consumption is falling 'rapidly', and Opec production capacity is 'just about to soar,' Merrill said.
'Combined, these factors represent significant short-term headwinds for both upstream and downstream companies alike,' Merrill analysts Mark Hume and Alexis Clark said in the report.
'Notionally it is conceivable that in a worst-case scenario global oil demand actually contracts in the near-term as it did back in the 1980s post the Iranian Revolution.'
Impede investment
A decline in prices to US$50 would impede investment decisions on projects, said Mr Anthony Nunan, assistant general manager for risk management at Mitsubishi in Tokyo.
'You're already seeing some delays because of the credit issues now,' Mr Nunan told Bloomberg. 'Longer-term, this is bullish because it adds to the already chronic supply problem.'
Crude oil for November delivery on Thursday gained as much as 1.9 per cent to US$100.37 a barrel in New York as the US Senate passed a US$700 billion financial-rescue package aimed at limiting the slowdown of economic growth in the world's biggest energy- consuming nation.
A 'string' of fields in Saudi Arabia, Qatar and elsewhere within Opec is set to increase capacity within the exporting group by about 3 million barrels a day in the next 18 months, the analysts said. In addition, refinery expansions and new projects
will add about 900,000 barrels a day of distillate and 700,000 barrels a day of gasoline production capacity, they estimate.
Cycle 'intact'
The long-term cycle for oil prices 'remains intact' because of under-investment in the industry, the Merrill analysts, based in Sydney and Melbourne, said.
'We argue that structural under-investment in the energy sector remains a key concern and once the economy re-emerges from its current decelerating trend, energy demand will likely start to strengthen and place upward pressure on prices that could structurally break above US$150 a barrel as economic activity recovers,' Merrill said. The revised 2009 price forecasts are 20 per cent lower than market consensus and 10 percent below forward prices, Merrill said. Preferred investments in the industry are 'quality names' that offer 'solid valuation, visible catalysts and minimal oil-price exposure,' it said, reiterating its 'buy' recommendations on Oil Search and Santos among Australia-listed stocks.
</TR><!-- headline one : start --><TR>Oil may fall to US$50 <!--10 min-->
</TR><!-- headline one : end --><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"-->CRUDE oil prices may fall as low as US$50 (S$72) a barrel next year, about half current levels, in the 'unlikely' event of a global recession, weighing on shares of petroleum producers, Merrill Lynch said.
According to Bloomberg news, such a scenario, where global growth in Gross Domestic Product falls to 1.5 per cent, isn't the base-case forecast, the bank said on Tuesday in a report.
Merrill cut its 2009 average price estimate for West Texas Intermediate, the US benchmark oil grade, by 16 per cent to US$90, citing falling demand and the start of new fields in Organisation of Petroleum Exporting Countries.
Crude oil future prices have fallen almost a third in New York since reaching a record US$147.27 a barrel on July 11, driven by concerns a worsening financial crisis in the US is crimping energy demand. US oil use is declining faster than expected, while European consumption is falling 'rapidly', and Opec production capacity is 'just about to soar,' Merrill said.
'Combined, these factors represent significant short-term headwinds for both upstream and downstream companies alike,' Merrill analysts Mark Hume and Alexis Clark said in the report.
'Notionally it is conceivable that in a worst-case scenario global oil demand actually contracts in the near-term as it did back in the 1980s post the Iranian Revolution.'
Impede investment
A decline in prices to US$50 would impede investment decisions on projects, said Mr Anthony Nunan, assistant general manager for risk management at Mitsubishi in Tokyo.
'You're already seeing some delays because of the credit issues now,' Mr Nunan told Bloomberg. 'Longer-term, this is bullish because it adds to the already chronic supply problem.'
Crude oil for November delivery on Thursday gained as much as 1.9 per cent to US$100.37 a barrel in New York as the US Senate passed a US$700 billion financial-rescue package aimed at limiting the slowdown of economic growth in the world's biggest energy- consuming nation.
A 'string' of fields in Saudi Arabia, Qatar and elsewhere within Opec is set to increase capacity within the exporting group by about 3 million barrels a day in the next 18 months, the analysts said. In addition, refinery expansions and new projects
will add about 900,000 barrels a day of distillate and 700,000 barrels a day of gasoline production capacity, they estimate.
Cycle 'intact'
The long-term cycle for oil prices 'remains intact' because of under-investment in the industry, the Merrill analysts, based in Sydney and Melbourne, said.
'We argue that structural under-investment in the energy sector remains a key concern and once the economy re-emerges from its current decelerating trend, energy demand will likely start to strengthen and place upward pressure on prices that could structurally break above US$150 a barrel as economic activity recovers,' Merrill said. The revised 2009 price forecasts are 20 per cent lower than market consensus and 10 percent below forward prices, Merrill said. Preferred investments in the industry are 'quality names' that offer 'solid valuation, visible catalysts and minimal oil-price exposure,' it said, reiterating its 'buy' recommendations on Oil Search and Santos among Australia-listed stocks.
