The National (UAE): Analysts warn of threat to oil price stability

Tamsin Carlisle

• Last Updated: August 21. 2010 10:08PM UAE / August 21. 2010 6:08PM GMT

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.

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