Wednesday, March 25, 2009

Oil prices rally, but they won't last : TD Bank

Oil prices rose above $54 US a barrel Monday, boosted by stronger stock markets and a weaker dollar.

Benchmark crude for May delivery rose $1.73 to settle at $53.80 a barrel in trading on the New York Mercantile Exchange, continuing its upward momentum.

But prices were as high as $54.05 earlier in the day.

Dealers said the rally, which was given an extra boost by the U.S. Federal Reserve's decision to buy $1.25 trillion US of government bonds and mortgage-backed securities, continued Monday as equity markets rallied in anticipation of more good news.

"It could well be that speculators/investors do the job that OPEC is incapable of doing — namely sending oil prices up," said a report from KBC Market Services in Britain.

But the TD Financial group doesn't think this oil price rally will last — and doesn't expect the oil rally to be sustainable.

"We not only believe that the recent rally will soon fade, but that next year's expectations of recovery will be disappointed, with a solid bounce in prices off the table until 2011 at the earliest," the bank said in a report.

The bank says the world is awash in oil, OPEC is unlikely to make any cuts in production and investors will likely put their money into equity markets, rather than oil.

"The fact of the matter is that many themes that were bandied about during the 2006-08 surge — notably, that rapid five per cent annual world growth was the new norm and that soaring demand, combined with insufficient supply gains, would leave the globe short of oil — have been largely dispelled. There is the distinct prospect that the new norm isn’t far off the old one, which had prices floating around a longer-term trend of $35 to $40 US per barrel in real terms, rather than a higher plateau of $75 per barrel," the bank said.

However, Bank of America Securities-Merrill Lynch raised its forecast for crude oil prices to $52 a barrel this year, from $50 a barrel, on the back of a tighter than expected oil market balance.

0 comments: