Morgan Stanley Sees 2009 Oil Averaging $35 a Barrel

By Christian Schmollinger

Feb. 3 (Bloomberg) -- Crude oil in New York will average $35 a barrel this year as the global economy contracts, limiting demand for fuels, Morgan Stanley said.

The price of West Texas Intermediate crude, the basis for futures traded on the New York Mercantile Exchange, will fall to a low of $25 a barrel in the second quarter, according to the Feb. 2 report by analysts led by Hussein Allidina. Crude will rise to average $55 a barrel in 2010 and $85 a barrel in 2011, he said in the report.

Oil futures in New York have slumped 73 percent since reaching a record $147.27 a barrel in July as the world’s economies have shrunk. The International Monetary Fund said last month gross domestic product in the U.S. will contract 1.6 percent this year, while Japan’s will fall 2.6 percent and the euro-area economy by 2 percent.

“We think that the oil markets are lagging the macroeconomists in understanding the severity of the economic outlook,” the analysts said. “As they catch up, and as the full extent of the demand weakness becomes clear, we expect prices to move lower.”

Crude oil for March delivery gained as much as 63 cents, or 1.6 percent, to $40.71 a barrel in after-hours Nymex electronic trading. It was at $40.56 a barrel at 12:05 p.m. Singapore time.

The recession in developed economies, combined with slowing emerging markets such as China and India, will cause oil demand to fall by 1.5 million barrels a day in 2009, the analysts said.

Asia Weakness

“Recent data refute notions of decoupling and the inevitability of non-OECD oil demand growth,” wrote Allidina and his team. “Economic data point to weakness in Asia meeting or exceeding 1997 levels, when regional oil demand contracted by 2 percent.”

Morgan Stanley’s outlook for West Texas oil is the lowest of 35 analysts’ forecasts tracked by Bloomberg News. Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne, predicts an average of $43.13 a barrel. Gerard Burg, an energy economist at National Australia Bank Ltd. in Melbourne, has the highest estimate at $110 a barrel. The median forecast is $58 a barrel.

Brent crude oil traded in London will perform slightly better, averaging $36 a barrel in 2009, the Morgan Stanley analysts said. It will gain to an average of $55 in 2010 and $84 a barrel in 2011.

Brent for March settlement rose as much as $1.03, or 2.4 percent, to $44.85 a barrel on London’s ICE Futures Europe exchange. The contract yesterday declined $2.06, or 4.5 percent, to settle at $43.82 a barrel.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.