Crude oil price forecast boosted to $59/barrel in ‘09
Energy analysts are baffled by price run in a weak-demand market
By Tom Stundza -- Purchasing, 6/10/2009 4:10:00 PM
Spot prices for crude oil and petroleum products have increased over the past month; in fact, crude oil futures this week reached $70/barrel for the first time since last October. This has caused the U.S. Energy Information Administration (EIA) to lift its estimate of the average crude oil price for 2009 to $59, from $52 forecast earlier, and the average price in 2010 to $67 from $58.
The EIA projects that West Texas Intermediate (WTI) crude oil is expected to average $67/barrel for the second half of 2009, an increase of $16 compared with the first half of the year. Historical WTI price data can be found at Business Intelligence Center - Energy Price Transaction Report in www.purchasingdata.com, Purchasing’s subscription website for commodities prices, leadtimes and business conditions.
The EIA market review says increased crude oil prices this spring “have been driven in part by expectations of a global economic recovery and future increases in oil consumption.” In addition, a weaker dollar and increasing financial market activity are prompting higher prices for commodities, overshadowing weak oil supply and demand fundamentals, the EIA suggests.
In fact, the weaker dollar may indicate that economic activity abroad, especially in Asia, is stronger than currently estimated, which would provide an upside risk to the oil price forecast. Still, there are downside risks--from continuing sluggish oil consumption, high inventories and increased surplus production from the Organization of the Petroleum Exporting Countries cartel--which “could moderate the upward price pressure, especially if the global economic recovery is delayed and/or weaker than expected.”
Some observers, however, are baffled by crude oil's persistent rise despite the notable lack of increase in global demand now. It was the falloff in demand, which was sparked by the intensification of the economic crisis last year that took oil down from the record highs above $145 a barrel hit last summer. “We are ignoring fundamentals,” Tim Evans, energy analyst at Citi Futures Perspective tells the Dow Jones Newswires. “The unemployment rate continues to rise, which is not good for gasoline consumption. To pretend that there is nothing but blue skies going forward (is) a naive economic assumption.”
See also: Goldman Sachs increases crude oil price forecast
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