06-10-2008: Oil: End of a bull run for now?

Down down down , the oil price now which is trading at US$89.32 also cannot escape the fate of downturn............

By Lim Shie-Lynn (theedgedaily)
KUALA LUMPUR: With global economies faltering on signs that the US is slipping into a recession, analysts’ expectations are high that oil prices will continue to fall due to slowing demand globally and a strengthening dollar though some are still hawkish about the commodity’s strength over the longer term.
RAM Holdings Bhd’s group chief economist Yeah Kim Leng (pic) said the softening in demand for oil had also spread to developed and emerging markets. “The bearish sentiment had spread to fast growing economies of BRICs (Brazil, Russia, India and China), where the energy demand was previously the highest.
“In the event that the US financial woes are prolonged despite the US$700 billion (RM2.4 trillion) bailout relief for troubled banks, there would be further weakening in demand for oil from the US and this would impact the price of oil,” Yeah told The Edge Financial Daily.
He also said oil prices could tumble to US$90 a barrel and below before the end of the year. “Looking at fundamental factors, oil prices now could be in the range of US$60 to US$80 a barrel. While oil prices may experience short spikes, the upward price pressures would be offset by slowing demand,” he said.
However, he said oil prices could regain its footing on any decline in the greenback. A decline in the US currency often attracts investors to buy commodities as a currency hedge.
Crude oil for November delivery fell nine cents to US$93.88 a barrel at 2.45pm on the New York Mercantile Exchange last Friday. Prices have dropped 36% from the record US$147.27 a barrel reached on July 11.
Some analysts said oil prices were likely to remain at current levels in the short term, as the market would be focused on reduced demand over supply constraints.
“There would not be strengthening in oil prices in the immediate term. The dollar has strengthened and it is likely to be gaining strength,” Jupiter Securities head of research Pong Teng Siew said. While oil prices were likely to recover, Pong said it was unlikely to see a strong bull run as it did in the previous quarters. Merrill Lynch, in a recent report, slashed its oil price forecast to US$90 a barrel from US$107 a barrel. It warned that in the “unlikely” event of a synchronous global recession, oil prices could fall to as low as US$50 a barrel. Nonetheless, the investment bank also said the end was not in sight in the commodity supercycle. It predicted that once economic activity recovered, the demand for oil would strengthen and reassert upward pressures on prices.
“Energy and commodity demand growth is a secular investment theme that probably has decades to run. “Barring massive gains in energy efficiency in the Organisation for Economic Co-operation and Development economies over the next few decades, strong emerging market demand growth will likely require a substantial increase in global oil supply growth,” it said.