Weak global economic growth in 2010 expected to drive down the price of oil

COMMODITY prices are expected to continue to rise this year but oil may prove to be the exception, according to international analysts.

The price of black gold is set to weaken in the months ahead, many market watchers say.

While Opec, the Middle East oil cartel, and the International Energy Agency (IEA) have raised their forecasts for oil demand this year, as the global economy starts to grow, they conclude that the price of oil will ease due to the relatively weak global economic growth anticipated for the year as a whole.

Several factors are at playincluding the switch to alternative energy, analysts claim.

Investec, the international asset management group said “increasing supply and rising stocks are likely to lead to prices falling“.

“Given the cost dynamics of the industry, we expect the crude price to trade in at $55-$85 a barrel in 2010.”

Investec said in a recent comment it was maintaining its oil price forecast of $65 per barrel for this year.

Oil prices are expected to fall from the current $75-$80 per barrel range to about $65 this spring, according to Nariman Behravesh, chief economist at IHG Global Insight.

That forecast is in line with a recent estimate by the World Bank predicting an average $63 a barrel this year.

MF Global commodity analyst Edward Meir blames “Opec’s continuing refusal to tighten export quotas” and said “the ensuing price bias will be to the downside“.

While fellow MF Global analyst Edward Meir said a strengthening US dollar is making oil more expensive for buyers outside the US.

“We suspect that [the dollar] will likely continue to strengthen into the year end and act as an overall drag on [oil] prices,” he said.

Chris Watling of Longview Economics, writing in the Financial Times, said even conservative estimates now suggest the supply of oil will increase by 9 million to 10m barrels per day by 2017.

And on that basis the €200 per barrel forecast about two years ago by Goldman Sachs will not be seen anytime soon.

That contradicts the view of ‘peak oil’ theorists, who have argued for some time that the world is running out of oil supplies.

Oil output may have peaked in the West but that is not the case in such countries as Saudi Arabia, Iraq, Kuwait and others in the region who combined account for 38% of global reserves.

The determined switch to alternative energy sources and the reverting to some old technologies is also having a bigger impact on supplies than might have been expected.

On that basis he says the peak oil view, though well intentioned, has been misguided.

China is targeting getting 15% of its total energy from alternative sources by 2010.

And Canada is now believed to have the second highest level of oil reserves in the world, thanks to continuing technology advances that are making it possible to exploit oil and gas deposits there readily accessible.

Brazil too is hoping to double oil output by 2020, while Angola, which has doubled its output over six years, is set to boost that figure a further 50% by 2015.

Oil prices peaked in mid-2007 at over $147 per barrel.

However, the optimistic view now is that the world will be spared those kind of prices for quite some time, even after the global economy starts to demonstrate more robust growth, said Watling.