Analysts Slash Oil Price Forecasts as Demand Falls

The fast approaching global recession has heightened expectations of a steep drop in global demand for oil, prompting analysts to slash their oil price forecasts, a Reuters poll found on Friday.

Since Reuters last poll three weeks ago, the consensus forecast for the average price of U.S. crude in 2008 has dropped by more than $7 to $105.67 a barrel, while forecasts for the average 2009 price has fallen almost $15 to $93.71.

The consensus for 2010 average fell over $7 to $99.48.

"Some developed countries are on the verge of economic recession if not in recession yet. Demand has fallen sharply and demand destruction will continue. That is the main driver of the market now," said Thorsten Fischer at Royal Bank of Scotland.

The October forecast for the average price of European benchmark Brent in 2008 is $105.40, down over $6 from $111.46 in September.

Oil prices have fallen more than 50 percent from their peak above $147 a barrel in July on a fall in demand in the wake of the global economic crisis.

Only 4 of the analysts polled kept their forecasts unchanged, while 26 lowered their forecasts across the board and unsurprisingly none raised theirs.

Forecasts for the average 2009 U.S. crude price range from $69.1 at Nomisma Energy to the highest of $115.5 at Barclays Capital - one of the 4 analysts to keep estimates unchanged.

"We clearly underestimated the depth and duration of the global financial crisis and its implications on economic growth and commodity demand," said analysts at Goldman Sachs.

Goldman Sachs slashed its 2009 average price forecast in October to $85 a barrel from $122 in September for Brent and to $86 a barrel from $119 for U.S. crude.

Analysts' price assumptions, however, are higher than current oil prices.

On Friday, U.S. crude was trading around $70 and Brent crude at $67.

Many analysts expect the Organization of Petroleum Export Countries (OPEC), the source of a third of global oil supplies, to defend oil prices at around $80 a barrel, by cutting the group's output target when they meet next week.

OPEC has brought forward an emergency meeting to Friday next week from November amid an unprecedented slide in oil prices.

"I think OPEC will cut quotas in November. OPEC members Iraq and Venezuela are definitely not happy with current prices," said Frank Schallenberger, Head of Commodity Research with Landesbank Baden-Wurttemberg in Germany.

He said a 500,000 bpd cut could defend the price of oil at $80.

Qatar's Oil Minister Abdullah al-Attiyah said on Thursday he expected OPEC to cut oil production by one million bpd or more.

OPEC's kingpin and the world's top oil exporter Saudi Arabia has yet to comment publicly.

Reuters monitors price forecasts by analysts, consultants and government bodies.

Since September's poll, JP Morgan's forecasts have been reinstated, while National Bank of Australia's have been omitted as Reuters has been unable to obtain forecast updates since July.

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