Two top US investment banks, Morgan Stanley and Bank of America, raised forecast for oil for 2009 and 2010 as spending by governments boosts global demand and signs of global recovery gain momentum.
Morgan Stanley said in a report that crude oil may average 35 per cent higher in New York next year and rise to $85 a barrel in 2011 as spending by governments boosts global demand.
Benchmark crude futures on the New York Mercantile Exchange will probably average $48 this year and $65 in 2010, according to the report. Next year will mark the beginning of a recovery as spending by governments provides the stimulus to maintain the re-stocking phase of a new commodity cycle, it said.
Governments in the world's biggest economies including the US, China and Japan have announced stimulus plans to boost growth. The world economy may expand two per cent next year after shrinking in 2009, the World Bank said last month.
"With petrol giving way and distillate stocks bloated, crude is facing some severe fundamental headwinds," the report said. "Barring further weakness in the dollar, we think crude's upside is limited from here."
Crude futures reached an eight-month high of $73.38 on June 30.
Prices of natural gas in the US may average $4.50 per million British thermal units this year and rise to $6.50 in 2010 and $8 in 2011, the report said. Benchmark gas traded in New York at $3.48.
Bank of America Corporation raised its average price forecast for West Texas Intermediate crude to $58.5 a barrel for 2009, and for Brent crude to $59.
The revision followed "a weaker US dollar, a significant improvement in liquidity conditions for the global economy, and a slightly tighter-than-expected global market oil balance", according to the forecast from analyst Frank McGann of Merrill Lynch Argentina, a unit of Bank of America.
WTI oil futures have rallied from near $33 in mid-January, to $64.05 on Monday on the New York Mercantile Exchange, underpinned by production cuts from the Organisation of Petroleum Exporting Countries, a weak dollar and optimism that the global economy will recover.
While the report did not provide a second-half 2009 forecast, Bloomberg calculations show that WTI would need to average $65.32 in the period in order to make Merrill Lynch Argentina's full year forecast accurate. WTI futures averaged $51.68 during the first half.
The bank raised its 2010 oil price estimate to $75 a barrel, from $62, and its long-term price for 2011 and beyond to $75 from $72.
"Despite the more positive view, we see very limited upside to oil prices in the near-term from current price levels," it said. "Opec compliance is likely to ease further over the next few months as higher prices encourage increased production among members."
The report, from the bank's equity research team, also raised share price targets for Brazil's Petroleo Brasileiro, its Argentine unit Petrobras Energia Participaciones, and Brazil's second-largest oil company OGX Petroleo e Gas Participacoes.
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