Oil May Climb as Storms Hit Supply; Growth Concerns May Cap Upside: Survey

Sri Jegarajah|Reporter, CNBC Asia Pacific

Oil prices may trade higher this week after storms shut production in the Gulf of Mexico though any upside will continue to be limited by global growth concerns led by the debt crisis in the Europe, CNBC's weekly survey showed.

Five out of eight respondents, or 63 percent, expect prices to rise. Meanwhile, two respondents forecast price declines while one expects no change.

U.S. crude stockpiles likely fell last week after Tropical Storm Lee disrupted oil production in the Gulf of Mexico, a preliminary Reuters poll found on Monday. The poll of nine analysts ahead of weekly inventory reports forecast a draw of 3.03 million barrels to crude stocks for the week ended Sept. 9. Lee shut in nearly 5 million barrels of oil production from Sept. 3 to Sept. 9, according to Reuters estimates based on U.S. government data.

"We are bullish, looking for Brent to push towards $118.00," said Dhiren Sarin, Chief Technical Strategist, Asia-Pacific at Barclays Capital. "The caveat is a weekly close below 1.3840 in EUR/USD which would suggest a stronger USD bid and likely stall the recent uptrend seen in the energy complex."

On the New York Mercantile Exchange Monday, crude for October delivery settled at $88.19 a barrel, gaining 95 cents, or 1.09 percent. In London, ICE Brent crude for October delivery settled at $112.25 a barrel, down 52 cents, or 0.46 percent, trading $110.42 to $113.76. Brent's premium versus WTI narrowed to $24.06 at the close, from $25.53 on Friday.

Rallies towards $118.00 in Brent crude "should be faded as this should hold firm on initial attempts and a pullback to $112.50 unfolds," Sarin added.

Still, sluggish economic activity and questions over the durability of the recovery led the Organization of Petroleum Exporting Countries to cut its forecast for global oil demand growth next year.

World oil demand will increase by 1.06 million barrels per day (bpd) in 2011, OPEC said in the report, 150,000 bpd less than expected last month. The growth estimate for next year was lowered by 40,000 bpd to 1.27 million bpd.

OPEC, whose 11 members pump more than a third of the world's oil, said the demand slowdown was not just in developed economies with barely growing oil markets but also in China and India, which are expected to drive the world's future growth, Reuters reported.  

'Significant Decline'

Commodities analysts from Societe Generale noted that though cyclical commodities like oil and copper had shown resilience to "extreme market nervousness about the euro debt crisis" and other global headwinds, a move down was coming.

"Oil markets have not yet priced in the weaker economic outlook and oil demand growth environment," Societe General said. "In our view, oil prices are due for a significant decline which will ratchet the market down into a lower trading range that will last through 2012."

That price decline should begin "soon in weeks, not months," the Bank continued. Supply disruptions in Nigeria, the U.K. and as a result of the active Atlantic hurricane season will prove temporary.

When these bullish factors wear off, it will coincide with crude and product demand seasonally declines, planned maintenance for refineries and the Northern Hemisphere the winding down of the gasoline driving season. "Set against the backdrop of a weaker economic and oil demand growth environment, these factors should together trigger a substantial price decline and result in a flattening of the Brent forward curve."

In the short term, supply disruptions may prove supportive for oil prices though the inescapable theme of slowing global growth will keep a lid on any move higher. The gradual return of Libyan oil the global markets will another factor keeping the pressure on prices, Deutsche Bank's Adam Sieminski says.

"As we see it, significant downside risk in oil would come from a combination of very low demand and the rapid recovery of Libyan oil. We believe our forecast for a $115/bbl Brent crude price average in 2012 fairly represents the prospects for weak (but still significant)growth in global oil demand and a drawn-out recovery in Libya," he said.