Bank Sarasin sees oil in $80-$100 range in 2011

The market for crude oil will gradually tighten in 2011 due to the continuing robust growth in demand from the emerging markets, Bank Sarasin said today in a new report.

According to a statement issued by the Swiss-based bank which has a presence in the UAE, crude oil price is likely to fluctuate between $80 and $100 a barrel and would be mainly driven by cyclical factors.

The bank’s latest study titled ‘Crude Oil: What’s moving oil prices in 2011?’ highlights that sharp price spikes were prevented in 2010 as inventory levels and spare production capacity remained at a relatively high level in spite of steadily rising demand.

These demand levels should continue to provide a cushion in 2011, the bank said, as they can be tapped into in the event of supply problems. Nonetheless, a faster-than-expected decline in inventories and spare capacities might temporarily heighten fear of an oil shortage and thus encourage speculative investments, its analysts say in the report.

“This [temporary demand-supply mismatch] could drive prices even higher than $100 per barrel at times. However, Sarasin analysts suggest that the sustained increase in oil prices to above $100 per barrel only in 2012, and expect the price at the end of Q4 2011 to be around $98.

“We do not think that major oil price spikes are likely in 2011 because the oil market should continue to be well supplied in 2011 as well. Since we also expect global economic growth to weaken somewhat in 2011, growth in demand should be slightly more moderate than in 2010,” said Eliane Tanner, Commodity Strategist, Bank Sarasin & Co., Switzerland.

Demand growth for crude oil from the member states of Organization of Economic Cooperation and Development (OECD) is likely to expand only weakly, or even stagnate in 2011 amid a loss of momentum in economic growth, the report said.

Moreover, structural factors such as demand for smaller cars and eco-friendly fuels as well as rapid rise in global natural gas supply is limiting growth in crude oil demand in industrialized countries.

However, the bank maintains that the emerging market demand for crude oil will continue their uptrend in 2011 whereby the robust growth of these economies should cause a gradual tightening in the crude oil market.

The demand from China, Brazil and the Middle East would help to buoy oil demand in 2011.

The Organization of Petroleum Exporting Countries (OPEC) surprised in 2010 with a rapid rise in the supply of natural gas liquids (NGLs), especially from Qatar. OPEC expects Qatar’s NGL supply to continue to expand in 2011 and estimates that Qatar’s NGL supply will increase to 1.2mbd in Q4 2011. Together with the rise in non-Opec production of 0.6mbd, this growth in output should already be sufficient to offset the rising level of global demand that is expected for 2011.

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