London, 13 March 2010

Crude oil prices tread water for the week as uncertainty about demand continued to weigh on the market. Prices were down slightly on the week, with the benchmark West Texas Intermediate settling on Friday at $81.24 a barrel, compared with $81.50 a week ago.

Not even relatively bullish forecasts for oil demand, such as the International Energy Agency’s report on Friday raising its forecast by 70,000 barrels a day for 2010, or the decline in the dollar could propel oil prices forward.

One analyst even predicted crude oil prices dipping below $60 a barrel in the second half of the year. Ronald-Peter Stöferle, a raw materials analyst at Austria’s Erste Bank, said that oil is relatively expensive by historical standards, and current prices are not justified by demand.

Moreover, Stöferle notes, OPEC seems to prefer a price between $70 and $80 a barrel to keep unconventional sources such as shale oil and oil sands, or alternative energy sources like solar and wind, from becoming economically competitive.

In any case, this analyst expects oil prices could rise further in the first half of this year, even hitting $100 a barrel, but will average only $72 a barrel over the second half due to weak demand and other factors. In particular, he thinks too many hopes are pinned on growth in China’s economy. “We are critical of the blind trust in the Chinese economy as recovery and growth engine,” Stöferle said, adding that China cannot be a “messiah for the global economy.”

The IEA’s forecast for an increase of 1.6 million barrels a day in crude oil demand this year to 86.6 million barrels a day was quickly eclipsed by another report on Friday. The University of Michigan consumer sentiment index, which declined in March to 72.5 from 73.6 in February, indicated that consumers remain uncertain about the future. Analysts had expected a small increase for the month.

The euro gained ground against the dollar, rising above $1.37. The dollar, already weak, declined further after reports that San Francisco Federal Reserve Bank president Janet Yellen, considered a “dove” on interest rates, will be nominated as vice chairman of the Fed. This would increase the likelihood of U.S. rates remaining low.

Ends --

Source: www.oilprice.com