Oil to average US$85 this year, says US bank

on crude oil prices averaging at US$85 (US$1 = RM3.35) a barrel this year, possibly topping US$100 a barrel as the global economy charts growth again.

Its global commodity strategist Francisco Blanch said with Asian markets poised to grow at a faster rate than European economies in the next few years and limited spare production capacity, commodity markets could be among the first to experience inflationary pressures.

"We forecast an average crude oil price of US$85 per barrel in 2010 and believe oil will breach US$100 per barrel as we approach 2011. In the first half of the year, oil is likely to trade around US$78.50 per barrel and in the second half we see the price trading at a higher band of US$92," he told a press conference in Kuala Lumpur yesterday.

A stronger-than-expected rebound in world economic recovery has led the analyst to revise up his forecast on global growth and oil demand.



"The combination of tighter physical oil supply and demand fundamentals, loose monetary policy, and a weaker US dollar is creating a growing risk for oil prices to spike above US$100 per barrel as we head into 2011," Blanch said.

He expects the world economy to expand 4.4 per cent this year and 4.5 per cent in 2011, respectively, from a 0.8 per cent decline in 2009, following a recent bout of growth surprises.

Oil prices rose to a 15-month high near US$84 a barrel earlier this week amid expectations of a spell of bitter cold in parts of the US, Europe and Asia which is expected to boost demand for oil distillates such as heating oil. China's growing economy and appetite for oil has helped boost prices from US$35 a barrel in December 2008.

But data released late on Tuesday by the American Petroleum Institute showed that distillate inventories increased 3.6 million barrels last week, while analysts had expected a drop of 1.7 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill.

China's decision two days ago in raising deposits that banks must hold in reserve also weighed on crude oil prices.

Prospects of softening fuel demand in the US, the world's biggest oil consumer, is reflected in recent crude oil movement.