Oil prices risk tumbling further in 2009
Oil prices, which hit record highs above $147 a barrel this year before plunging under $33, risk slumping more in 2009 as recession curbs the world's appetite for energy, analysts say.
"We expect oil prices in early 2009 to remain under pressure given the weakening demand outlook and as global economies continue to slow," said Nimit Khamar, analyst at the Sucden brokerage in London.
"By the end of the second quarter, we expect prices should stabilize and find a floor, provided OPEC can comply with their recent cuts and continue cutting output."
The crude market plunged in late December to reach the lowest points for almost five years as weak economic data around the world stoked concerns that a sharp global slowdown will ravage the market.
The Organization of Petroleum Exporting Countries (OPEC) oil producers' cartel, which pumps 40 percent of the world's crude, is keen to prevent prices sliding further, as member nations look to protect their incomes.
However, OPEC production cuts agreed in September, October and December have failed to stop the market sliding under $33 earlier this month.
"Heading into 2009, we believe many commodity prices are set to overshoot to the downside in response to the worst downturn in economic activity since the Great Depression," added Deutsche Bank analyst Michael Lewis.
The market scaled record heights earlier this year on supply worries in key producing nations, sparking fears about runaway inflation globally.
But economists now fear that a plunging crude market will spark deflation -- a prolonged drop in prices -- that will further damage a global economy that is reeling from the impact of a credit crunch.
"2008 will go down as one of the most volatile and difficult years, ever" for oil, said Peter Beutel, analyst at energy consultancy Cameron Hanover.
"It was a year that started with runaway prices and all the makings of the worst inflation in nearly three decades. It is ending with imploding deflation and the worst recession in seven decades," he added.
The market has plunged by as much as 78 percent since hitting record heights five months ago, as traders fretted about the threat of a global recession -- defined as two straight quarters of negative economic growth.
Recession has so far infected the eurozone, Japan and the United States, while even Asian powerhouse China is experiencing slower growth as a global financial crisis takes its toll.
Major world powers have responded to the ongoing crisis with coordinated interest rate cuts and "stimulus" spending plans designed to lift their economies out of the doldrums.
The oil market began 2008 by vaulting above $100 a barrel for the first time.
Prices hurtled past $100 on January 2, 2008, as traders fretted over violence in oil exporter Nigeria, and supply problems in the key U.S. market.
The assassination of former Pakistani opposition leader Benazir Bhutto in late 2007 also stoked geopolitical jitters.
Crude futures subsequently rocketed above $120, $130 and $140 a barrel on their way to setting all-time highs in July.
Over the last two years, oil prices have also soared owing to rampant energy demand from emerging economic giants China and India, and friction between key crude producer Iran and the Western world over Tehran's nuclear program.
Prices also fizzed higher in 2008 because of a weak dollar, which encouraged demand for dollar-priced commodities as they became cheaper for foreign buyers.
The market set historic highs on July 11 as traders seized on simmering geopolitical tensions in Nigeria. That day, New York crude struck $147.27 a barrel and London Brent touched 147.50 dollars.
Since then, crude futures have plummeted by more than $114 to below $33 a barrel in New York in December. London's Brent North Sea crude for February delivery traded at under $37 a barrel last week.
U.S. investment bank Merrill Lynch forecasts oil prices to average $50 a barrel in 2009, as energy demand tumbles in the face of shrinking economic growth.
Deutsche Bank predicts prices to average $47.50 in 2009, cutting its previous forecast of $60.
OPEC blamed speculators for soaring prices, arguing that they have inflated the market, while key consumer nations cited low oil supplies as the chief cause.
After a rollercoaster year, oil prices have tumbled by about 57 percent since the start of 2008 when they traded at about $95 per barrel.
The market had doubled in value over the course of 2007 from a low point of just under $50 per barrel.