UBS Expects Crude Oil to Average $60 Next Year on Weak Demand

By Fiona MacDonald

Nov. 17 (Bloomberg) -- Oil prices are expected to fall to an average $60 a barrel next year, from $99 this year, as a global financial crisis weakens oil consumption, UBS AG analysts said.

The bank expects West Texas Intermediate crude oil to average $75 a barrel in 2010.

Global oil demand will contract this quarter ``far more sharply'' than it did during the third quarter, UBS analysts Jan Stuart and Daniel Brebner said in a report dated today.

``We see further, steep declines through'' the first half of next year, ``and a full year average contraction in 2009 as well,'' the first since 1984, the analysts said.

December oil futures traded in New York, which are based on the West Texas Intermediate grade, fell $1.47 to $55.57 a barrel in electronic trading at 11:37 a.m. London time. Prices have fallen from a record $147.27 a barrel reached in July on signs that the contracting U.S. economy is cutting fuel use around the world.

``Real economic damage is done and will take time to repair,'' the UBS analysts said. ``The full extent of that damage and its impact on oil demand is `unknowable' as yet.''

The analysts said their estimate of global spare oil production capacity has now risen to about 4 million barrels a day for 2009 through 2010, which is similar to levels at the start of this decade.

``All is not well on the oil supply side either,'' the report said. ``Companies are falling all over themselves to announce capital expenditure and other spending cuts and development delays.''

To contact the reporter on this story: Fiona MacDonald in Kuwait FmacDonald4@bloomberg.net