Crude-oil prices may fall as low as $50 a barrel next year, about half current levels, in the ``unlikely'' event of a global recession, weighing on shares of petroleum producers, Merrill Lynch & Co. said.
Such a scenario, where global growth in Gross Domestic Product falls to 1.5 percent, isn't the base-case forecast, the bank said today in a report. Merrill cut its 2009 average price estimate for West Texas Intermediate, the U.S. benchmark oil grade, by 16 percent to $90, citing falling demand and the start of new fields in Organization of Petroleum Exporting Countries.
Crude-oil future prices have fallen almost a third in New York since reaching a record $147.27 a barrel on July 11, driven by concerns a worsening financial crisis in the U.S. is crimping energy demand. U.S. oil use is declining faster than expected, while European consumption is falling ``rapidly,'' and OPEC production capacity is ``just about to soar,'' Merrill said.
``Combined, these factors represent significant short-term headwinds for both upstream and downstream companies alike,'' Merrill analysts Mark Hume and Alexis Clark said in the report. ``Notionally it is conceivable that in a worst-case scenario global oil demand actually contracts in the near-term as it did back in the 1980s post the Iranian Revolution.''>>>MORE
HT- Naked Capitalism who adds:
As the recession takes hold and increasingly looks to be a nasty affair, analysts are quickly revising forecasts to levels that would have seemed barmy a mere month ago. The latest is a new Merrill call that oil could drop to $50 a barrel, although the report waffles hugely by deeming a global recession "unlikely". Have the authors not been reading the news, or is it house policy to underplay mention of how bad things look likely to get?