Oil points to $85 in 2010

After the record slide of late 2008, crude oil has posted its biggest annual gain in a decade, climbing nearly 80 per cent to take back a big chunk of the previous year's losses. After rising for seven straight sessions on the New York Mercantile Exchange, crude ended the year close to US$80 per barrel, not far off its $82 high for the year set in late October. That was almost a $50 per barrel improvement on the $32.70 low point to which it sank in February. "So much then for 2009, a year that the oil market spent mainly in recovery mode," said Paul Horsnell, the head of commodities research at the investment bank Barclays Capital . While crude is still far from the record $147 a barrel reached on July 11, 2008, it is worth recalling that the remarkable run-up in oil prices in the second quarter of that year was short-lived and, in hindsight, unsustainable. The question now is whether prices can be maintained above $80. Mr Horsnell, for one, is bullish on crude this year. Barclays Capital has predicted it could average $85 per barrel, a 37 per cent gain from last year. "We expect 2010 to be a year of transition between the demand concerns of 2009 and the supply concerns of 2011, with, in addition, geopolitical developments having a heightened importance," the firm said in a research note. Investors are also growing more confident about an Asian-led recovery of the global economy, which may soon be joined by the US. "The anticipation of a pickup in US oil demand is going to be a big factor that will come into play in 2010," said Gavin Wendt, an analyst at Mine Life Resources," Gavin Wendt, an analyst at Mine Life Resources in Sydney, told Bloomberg. Civil unrest in the second-biggest OPEC oil exporter escalated towards the end of last year as protesters challenged the legitimacy of the regime following the disputed June re-election of Mahmoud Ahmadinejad as president. Iran has detained about 1,000 people since the latest round of protests erupted on Sunday,human rights groups have said. For the moment, the Iranian situation and cold weather in North America could counterbalance an expected rally in the US dollar next week to keep crude prices near their current levels a little longer. The cold snap has already caused a 4.9 million-barrel drawdown of bloated US crude stockpiles over the Christmas holiday. Petrol stocks in the world's biggest energy consumer also shrank last week, surprising most analysts. Still, some think the situation cannot last. "Prices could come under considerable pressure," said JBC Energy, the Vienna-based consultancy, noting that oil stocks are still well above average for the time of year. Stockpiles of gasoil, a refined product similar to diesel, have risen 22 per cent at the main European trading hub in the Netherlands in the past week. Despite the nagging stock overhang, OPEC increased crude output last month to the highest level this year as members sought to profit from rising prices. December production by the 12-member group averaged 28.965 million barrels per day (bpd), up 65,000 bpd from November according to a Bloomberg survey. All members exceeded production quotas that were left unchanged at the group's last meeting on December 22. Nigeria alone increased output by 100,000 bpd to more than 2 million bpd. "It looks like OPEC production will continue to rise in coming months," said Michael Lynch, the president of the US-based Strategic Energy & Economic Research. "OPEC is counting on increased demand. They will be in trouble if their assumptions turn out to be incorrect." Preliminary data on tanker loadings, however, suggest the group could cut oil shipments this monthThe next OPEC meeting is scheduled for March 17 in Vienna. tcarlisle@thenational.ae