Early indications that OPEC members are complying with the deepest ever oil-supply cuts may not stop oil prices from falling further, a top energy analyst said on Wednesday.
“It’s going to be difficult,” said Adam Sieminski, chief energy economist for Deutsche Bank. OPEC’s previous efforts to cut output to stabilize prices have had limited effect. “They have to cut four to five million barrels a day in quotas; they have to get a good portion of that in real, wet barrels off the market,” Sieminski said. “In a sense, OPEC is chasing the economy down.”
Oil has plunged from record highs above $147 a barrel in July as the global economic crisis lowered oil consumption, prompting the Organization of the Petroleum Exporting Countries (OPEC) to agree to cut about 4.2 million barrels worth of production. Despite the cuts, US oil inventories have climbed steadily in recent weeks, and crude stocks at the NYMEX delivery point in Cushing, Oklahoma, reached a record high.
On Wednesday, US light crude for March delivery rose 6.6% to more than $43 a barrel as the supply cuts outweighed evidence that a deepening global slowdown is crushing oil demand.
OPEC efforts to pare production are “coming in better than early expectations” but the exact amount of crude that must be cut to stabilize prices remains a guessing game, Sieminski told reporters at Deutsche Bank’s Houston trading floor.
Even if OPEC succeeds at paring worldwide supply, Sieminski sees a bumpy ride for oil prices this year. He does not expect the US economy to regain its footing until the second half of the year, ahead of other struggling economies such as China and India.
While Deutsche Bank’s oil outlook calls for an average price of $47.50 a barrel this year, Sieminski sees a $45 average price in the Q1, rising to $50 in the Q2, then sliding to $40-45 for the H2 of 2009.
A Reuters poll on Wednesday showed industry analysts expected oil demand to contract by 430,000 barrels per day this year, deeper than previous forecasts. (Reuters)