Oil predicted to fall sharply to $22

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The Independent Online

The prics of oil is likely to fall sharply, boosting world economic growth, according to a report published this morning. The recent climb in prices to a 10-year high of $37.20 late last month was due to speculation, say economists at ING Barings. They predict a decline to $22 a barrel and below next year.

The prics of oil is likely to fall sharply, boosting world economic growth, according to a report published this morning. The recent climb in prices to a 10-year high of $37.20 late last month was due to speculation, say economists at ING Barings. They predict a decline to $22 a barrel and below next year.

Last week saw a significant fall in prices as the United States began to release oil from its Strategic Petroleum Reserve. The benchmark Brent price was close to $30 on Friday.

Many analysts expect further falls, but there remains a good deal of nervousness about the effect of increased winter demand if the weather turns out to be cold. The lack of spare refining capacity is a particular worry, as increased crude supplies will not make any difference to such bottlenecks.

However, Mark Cliffe, chief economist at ING Barings, predicts in his report: "The oil 'bubble' will burst, with a sharp downward correction in prices to $22 a barrel. The underlying supply/demand balance is moving firmly in favour of lower prices."

He estimates that the oil price would have had to climb above $50 before the threat to the economy became as serious as the 1970s crises. As it is, the expected fall in the price will kick-start growth once again.

"If this analysis is correct, then this promises a substantial improvement in the global economic environment," the report concludes. Lower oil prices would boost growth and profits and reduce inflation.

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