By the OGJ Online Staff
LONDON, Jan. 3 -- Although Brent crude for February settlement has rebounded above $20/bbl in London, financial analysts have lowered their price forecasts for the year because of long-term concerns about the economy.
Traders say prices on the London International Petroleum Exchange have risen $1.10, or 5.5%, to $21/bbl because of demand for home heating oil in North America and Europe and not because of any underlying feeling that the Organization of Petroleum Countries will be able to enforce its new output quotas.
The rise comes as Merrill Lynch & Co. has suggested that Brent crude will average $17.50/bbl this year, down from almost $25 in 2001. The company was previously forecasting $21.50 for 2002.
Sue Graham, global coordinator of energy research at Merrill, said her company also has cut earnings estimates by as much as 35%. Europe's top three oil companies, Royal Dutch/Shell Group, BP PLC, and TotalFinaElf SA are all predicted to lose value during 2002.
She added that while companies such as Conoco Inc. and Phillips Petroleum Co. are merging to lower costs, such actions may fail to boost profits as oil prices drop. Investors already have sought other opportunities, causing the Dow Jones Europe Stoxx Energy index to be the third-worst performer in the past 3 months.
Zurich Scudder Investments Ltd., London, also has reduced holdings in major oil companies because of lower price forecasts. The company normally has $1.4 billion invested in oil companies, but now has nearer $1 billion.
Many other oil analysts are waiting for International Energy Agency statistics due Jan. 12 before finalizing their annual forecasts. However, unofficial polls indicate that few will be predicting more than $19/bbl.
This year, the IEA expects a 600,000 b/d rise in oil demand, two-thirds the average annual gain during the 1990s. October oil inventories were the highest in 3 years, according to the latest IEA data, which show that the international oil market is worth $1.5 billion/day and that demand is growing at the slowest rate since 1984.