Have oil prices peaked for 2009?

Is demand for the black stuff going to track economic recovery and fuel oil prices or will other factors limit demand in 2009 and beyond?

Holly Cook 25 August, 2009 | 1:22PM

Almost one year on and oil prices are currently half what they were at their peak in 2008. But an increase in demand for the black stuff, fuelled largely by China, has played a key role in the recovery of the price of WTI crude oil to current levels of $74 per barrel from last year’s $30 low. Though consensus appears to be that demand for oil will rebound over the next few years—to levels of around 90 million barrels of oil per day, particularly as China’s pace of economic growth remains high, could the slow path to global economic recovery hamper this demand and, therefore, weaken the price of oil?

Oil prices may well be only half their 2008 peak of near-$150 per barrel at present, but they are still relatively high historically, having increased broadly in line with equity markets during 2009 as the global economic outlook has brightened and risk aversion has gradually abated. Compounding these factors, China’s implied oil demand in July increased 3.5% from the same period a year ago as imports peaked.

But the assumption that a global economic recovery will drive demand is only one side of the coin. Noting that the statistics and demographics are on the side of the consensus view, Threadneedle’s Head of Commodities, David Donora, warns: “It is possible that the combined effects of weak global economic growth and persistently high oil prices, combined with technological innovation and the push towards energy security, could combine on a global basis to stabilise global oil demand in the near term and cause it to decline over the longer term.”

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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