By OGJ editors
HOUSTON, Oct. 3 -- A research report released Oct. 3 by Deutsche Bank sees room for oil prices to continue to decline.
"We believe crude oil prices have further downside as the fallout of the financial crisis spreads into the real economy and ultimately global oil demand. Like gold, we also believe the oil price is trading rich relative to the US dollar, with the current euro/dollar rate suggesting an oil price nearer $80/bbl," the report says.
Over the last 2 years, 85% of the movement in the West Texas Intermediate oil price is explained by shifts in the value of the dollar, the report says.
Deutsche Bank recently reduced its fourth-quarter 2008 and first-quarter 2009 WTI price forecasts to $85/bbl. The price is forecast to average $90/bbl in second quarter 2009.
The report notes that some other analysts are looking for oil to move as low as $50/bbl, a price last seen in early 2007.
Analyst Adam Sieminski says that although $50/bbl oil is not out of the realm of 'reasonableness' in view of recent history, it seems unlikely in view of the consensus opinion that the Federal Reserve will cut interest rates when it meets later this month.
Meanwhile, natural gas is forecast to average $9/MMbtu in the final 2008 quarter and $8.50/MMbtu in first quarter 2009, rebounding to $9/MMbtu in the second quarter of next year.
Despite shut-in gas production in the Gulf of Mexico following Hurricane Ike, gas in underground storage continues to climb, and Deutsche Bank estimates gas is on track to reach 3,400 bcf by the start of winter.
"Since many meteorologists are forecasting a colder-than-normal start to the US winter, we continue to believe that US natural gas is trading cheap relative to oil," Sieminski says.
