Merrill Oil Guru Shifts From Bull to Bear and Back

By Robert Tuttle

Dec. 16 (Bloomberg) -- Francisco Blanch, the Merrill Lynch & Co. analyst who called the $147.27 record crude-oil price nearly on the nose, sent markets into a tailspin with his forecast that the next move may be back to $25 a barrel in 2009. Such relief for consumers may be short-lived once the global recession ends, he said.

“If we reignite economic growth to a very fast level, we will have a shortage of energy again,” said the 35-year-old head of global commodity research at Merrill Lynch in London. Oil may rise to $150 in two or three years, said Blanch. World growth will reach 2.2 percent next year and rise to 4.8 percent by 2011, according to the International Monetary Fund.

Blanch changed his 2009 price forecast at least four times this year as the worst global slowdown since 2001 spreads. His most recent estimate that crude may fall to $25 came on Nov. 26. The Organization of Petroleum Exporting Countries’ 13 members meet in Oran, Algeria, tomorrow to try to stem crude’s decline.

“A shift of views from an analyst is a good thing,” said Pierre Andurand, chief investment officer at BlueGold Capital Management LLP, a London-based hedge fund that manages $1.1 billion. “It means he takes the change in economic conditions and the change in balances into account. We can’t say that for many of them.”

On August 7, with crude about $27 below the record set about a month earlier, Blanch said he expected oil demand to be supported by “very healthy” growth in emerging markets.

The following month, Lehman Brothers Holdings Inc. declared bankruptcy, credit markets froze and recessions in the U.S. and the Europe deepened.

Global Recession

Blanch lowered his average 2009 forecast to $90 on Oct. 2 and said crude may fall to $50 in a global recession. Following the announcement, prices dropped 4.6 percent to $93.97 a barrel on the New York Mercantile Exchange.

Two months later, he forecast a fall to $25 if the recession extended to China. Oil tumbled 13 percent to $40.50 a barrel that day and the next.

“What changed our views is that the credit cycle became explosive. Suddenly the cost of money just absolutely ballooned,” said Blanch, who lives in London’s Hampstead area with his wife, Gabriela, a human rights lawyer, and a golden retriever named Guero.

Goldman Sachs Group Inc. analysts Jeffrey Currie and Allison Nathan, and Deutsche Bank AG’s Adam Sieminski, have also reduced price forecasts.

Other Forecasts

London-based Currie and Nathan, in New York, predicted on Dec. 11 that oil would drop to $30 in the first quarter of 2009, half their previous forecast. Washington-based Sieminski predicted an average price of $47.50 for 2009.

Oil for January delivery rose 51 cents, or 1.2 percent, to $45.02 a barrel at 8:34 a.m. on the New York Mercantile Exchange. The price has fallen 51 percent in the past three months.

Born in Madrid, Blanch received a doctorate in economics from the city’s Complutense University and a master’s degree in public administration from Harvard University’s John F. Kennedy School of Government. He was in South Korea to research East Asian economic growth when a financial crisis struck the region, sending oil to $10.35 in December 1998.

At the time, he had “pretty much the same feeling we have now,” Blanch said.

After working as an energy economist for Goldman, Sachs & Co. and consulting for the European Commission, Blanch joined Merrill Lynch in April 2005. He declined to discuss his future after Merrill’s takeover by Bank of America Corp.

Blanch forecast $150 oil in November 2007 when crude was about $96, saying that would set the stage for a global economic slowdown sending the price to $50.

‘Cold Outside’

His $25 prediction may have received more weight than it deserved, said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts.

“Sure, if the Chinese economy gets really bad, we could go below $25,” she said. “It’s kind of like saying if the temperature drops, it will be cold outside.”

Blanch, who runs half-marathons and takes the subway to work, said the likelihood of $25 oil is less than one in three.

“The best you can do is sort of set out a number of alternatives and try to set out within your central forecast what are the risks around it and what are the alternatives,” he said. “Nobody has a crystal ball.”

To contact the reporter on this story: Robert Tuttle in New York at rtuttle@bloomberg.net