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19

Merrill Lynch Cut Oil Price Forecast

Merrill Lynch & Co cut its 2009 oil price forecast to $50 a barrel from $90 on speculation that OPEC is powerless to support the market as fuel demand shrinks amid a global economic slump

Merrill Lynch & Co. cut its 2009 oil price forecast to $50 a barrel from $90 on speculation that OPEC is powerless to support the market as fuel demand shrinks amid a global economic slump.

Merrill lowered its 2010 forecast to $70 a barrel from $100. Iran and Venezuela have called for the Organization of Petroleum Exporting Countries to cut production again after an Oct. 24 decision to reduce supplies by 1.5 million barrels a day failed to stop the slide in prices.

Crude futures in New York have tumbled more than 65 percent from a July record of $147.27 a barrel, to trade near $51 today.

“We doubt OPEC can materially alter either market fundamentals or sentiment near-term,” Merrill analyst Alastair Syme in London said in a report today. “In a rapidly falling demand environment we see little that suppliers can do to either reverse sentiment or tighten market fundamentals.”

Any further reduction in OPEC supply “will be both politically problematic and unlikely to have a significant bearing until next year,” according to the Merrill report, which cited forecast changes by Merrill Commodity Strategist Francisco Blanch.

The bank earlier this month said that global demand will contract by 400,000 barrels a day next year as recession in the world’s developed economies drives down fuel demand and banks cut credit to consumers.

Merrill’s $50 estimate for 2009 prices will be the second- lowest among 32 analysts tracked by Bloomberg after Australia and New Zealand Banking Group Ltd. Senior Commodity Strategist Mark Pervan, who expects average prices near $43 in 2009.

The median forecast among analysts for 2009 average West Texas Intermediate crude prices is $75.40 a barrel. That 2009 median estimate had peaked at $120 during July when oil prices were at their highest.

Merrill’s forecasts for Brent crude are the same as its West Texas Intermediate estimates from next year onward. It expects prices to average $43 in the first quarter of 2009, $45 in the second, rising to $61 in the last quarter.

Author: Jo Amey