Oil Could Hit $35/Bbl Without Major OPEC Cuts

Oil prices are likely to sink as low as $35 a barrel without a massive production cut from the Organization of Petroleum Exporting Countries, Lawrence Eagles, head of commodities research at JPMorgan Chase & Co., said Friday.

OPEC needs to cut 3 million barrels a day to compensate for the bleak global economic outlook, which is expected to result next year in the
first contraction to oil demand since the early 1980s. The group agreed in October to reduce output by 1.5 million barrels a day, but OPEC is unlikely to successfully make further cuts quickly enough to prevent further declines in oil prices, Eagles said in a conference call.


“I can’t see how they can manage to keep prices at a stable level,” unless the group agrees in advance to continually cut production so long as oil remains below a certain level, Eagles said. OPEC is unlikely to adopt that tactic, known as a price band mechanism, he said.

Oil prices have plunged below $50 a barrel this week, to the lowest point since May 2005, just four months after reaching record highs above $145. Forecasters see little hope for a significant recovery before the second half of 2009. Deutsche Bank recently predicted $40 a barrel oil by April. January crude futures recently traded at $49.49 a barrel on the New York Mercantile Exchange.

Rigzone