Some of the biggest Wall Street investment banks have slashed their oil price forecasts to reflect developments in Libya and general economic gloom.
But the bearish sentiments come just weeks after Goldman Sachs and the International Energy Agency predicted surging world demand would send crude and heating oil prices higher next year.
JP Morgan and Citibank Group both trimmed their projected prices for crude this week, citing waning oil demand forecasts and an improving supply picture, marketwatch.com reported. Morgan Stanley and Goldman Sachs sounded notes of caution.
Citigroup’s projections were the most dramatic. The bank cut its price forecast for the US benchmark West Texas Intermediate crude to $72 a barrel for 2012 – down from a previous forecast of $80. Crude oil contracts were selling for more than $85 a barrel yesterday.
“Falling oil demand growth is paralleling recent macroeconomic headlines and points to lower prices ahead,” the bank said in a note.
The price revision comes amid fears the world economy is slipping back into recession following sovereign debt crises in Europe and worrying economic signals from the US – the world’s biggest oil using nation.
But the discounted forecasts also reflect this week’s developments in Libya. Oil prices spiked this year to 30-month highs after a civil war to topple Libyan leader Moammar Gadhafi halted production of the North African country’s 1.3 million daily barrels of crude, disrupting world oil supply. But now that rebels have stormed the capital Tripoli, there are hopes Gadhafi will be forced from power and Libya’s oil production can soon resume.
JP Morgan also lowered its price projection, tipping Europe’s benchmark crude, Brent, would slip $9 next year to $115 a barrel. Goldman Sachs acknowledged that a speedy end to violence in Libya could boost the world’s oil supply. Morgan Stanley said a return of Libyan production would dent its oil price outlook in the short-term.
Oil prices, which peaked at $140 a barrel in 2008, crashed to $30 a barrel when the global financial crisis hit and demand bottomed out. This week’s revised price forecasts carry significant weight in oil markets and are watched closely by investors for signals of where the market is headed.
As heating oil prices are closely linked to those of crude, a drop in actual prices would likely lead to savings for home heating oil customers. But many commentators are picking prices to surge again when demand peaks this winter.
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