Oil prices likely to fall below $100

LONDON: Oil prices should extend their nearly 30 per cent slide and dip into double digits for the first time in five months as the US oil sector seems to have escaped severe damage from Hurricane Gustav, analysts said on Tuesday. High fuel prices and the wider economic crisis have clipped demand from the United States and other large consumer nations this year, dragging prices from record highs over $147 a barrel to below $108. Prices had rebounded last week on fears Gustav could cause severe disruptions to US oil operations in the Gulf of Mexico. Early soundings showed little damage to the sector, however, sending oil down again. Analysts said it was now poised to break below $100 for the first time since early April. "It would take a really major storm to change the direction in crude oil in the midst of its major correction since July, and Gustav is not it," said Chris Jarvis, senior analyst for Caprock Risk Management. "Could we drop back below $100? Certainly." Oil demand in the United States, the world's biggest oil consumer, dropped by 800,000 barrels per day (bpd) in the first half of 2008, the steepest volume drop in 26 years. Some analysts say falling demand from developed economies in the Organization for Economic Co-operation and Development (OECD) could undermine gains from emerging economies like China that have underpinned the six-year rally in oil. "If that contraction becomes steeper, at some point it's going to be hard to argue there is enough non-OECD growth to offset it," said Mike Wittner, analyst for Societe Generale. Oil experts have been revising down price forecasts on the basis of weaker demand projections. Most recently Lehman Brothers this week cut its 2008 forecast for Brent crude, used as a benchmark in Europe, the Middle East and Africa, by $3 to $112 a barrel. "We are going to get to $100 or below because of the fundamentals," said Simon Wardell of Global Insight, adding that while most of the worst of the global demand losses may have occurred, there was still a threat of the OECD's economic problems affecting emerging economies. "The outside risk factor is that problems in the West and the OECD spill over into non-OECD market, but I think that would affect the second half of (next) year."