Crude oil prices to remain range-bound, but below $90 a barrel: Analysts
Sharad Matade 12 November 2010

Despite the financial measures that the US is trying to push through, American demand is expected to stay suppressed due to the faltering economy, and prices are expected to remain in check

Global crude oil prices, which hit a new two-year high of $88 a barrel on Thursday, will not rise much and will remain range-bound below $90 per barrel, say analysts.

In a report, BRICS Securities said, "We expect oil prices to average between $70-$80 per barrel at least till FY12, even as global demand crosses 2007 levels in 2010. The likelihood of demand flagging appears limited as global governments are determined to stimulate their economies at (the) slightest hint of a slowdown. With no large incremental supply expected, we have assumed the long-term oil price at $75 a barrel."

Global oil prices dropped below $87 a barrel in Asian trade today due to a decline in regional stocks amid a strong dollar. According to the US Department of Energy, oil prices surged after a decline of 3.3 million barrels in US crude oil stockpiles in the first week on this month.

"This is a seasonal phenomenon, as in the US, this is the hurricane period which leads to supply disruption. In this season, demand for heating oil and diesel is always high and the drop in inventories is just a weekend activity. Until the trend continues for eight to ten weeks, we can not jump on this demand trend," an analyst from Emkay Global Financial Services Ltd told Moneylife.

The depreciation of the US dollar is pushing up oil prices. However, high prices will not sustain until the world's largest oil-consuming country recovers completely.
On the subject of recovery, according to Nobel Laureate economist Joseph Stiglitz, the US Federal Reserve's policy of quantitative easing will do little to boost the US economy. The recent bout of quantitative easing by the Fed has boosted commodity markets. However, crude prices may remain in check due to the long road that the USA has to limp along for economic recovery.

"The falling dollar and the quantitative easing measures by the US Federal Reserve are supporting commodity prices; but oil has remained at the downside compared to other commodities because there are still concerns over the US and European economies. So until there is concrete growth in the US economy, oil prices will not reach $100 a barrel," the analyst from Emkay added.

Mayur Matani, research analyst, ICICI Securities, said, "The Organization of the Petroleum Exporting Countries (OPEC) has predicted that crude oil prices will remain around $74-$75 a barrel for this fiscal year. Over a period of time, crude oil prices will be about $80 a barrel, where (both) oil-consuming companies and OPEC are comfortable."

"Many stimulus packages are being poured into markets by the US and a few European countries. This has already fuelled oil prices - they touched $88 a barrel recently. And to touch higher levels of crude oil prices, more stimulus packages are required, which seems difficult at this time" added Mr Matani.

However, some market pundits are also predicting that oil prices would be seen at $100 a barrel. According a report which quoted Dallas-based energy investor T Boone Pickens, oil prices will rise to $90-$95 a barrel next year, and may touch $100.

However, Mr Matani told Moneylife, "It's difficult to touch the level of $100 a barrel. The economic situation in the US and European countries is not encouraging. Prices may touch $95 a barrel on speculation, but it would be difficult to sustain prices at this level. I don't think crude oil prices would go beyond $90 a barrel."

V Malik
1 decade ago
Good article, thanks.

However, it is not just the price of benchmark crude at loadport which is relevant, but also the rapidly increasing cost of transporting and converting this crude oil into usable products.

That the increasingly stringent requirements for cleaner low sulphur fuels as well as the rapidly increasing cost of ensuring safe passage of crude has gone up by almost 100% or even more in dollar terms, and even more when calculated in SDRs or some other currencies, needs to be factored in too.

Sharad Matade
Replied to V Malik comment 1 decade ago
Thanks sir for your suggestion. Next time I will definitely take that factor into account.
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