2009年1月6日星期二

Oil Curve Steeper Than '99 Shows Possible Gain in '09

Jan. 5 (Bloomberg) -- The steepest plunge in crude prices on record may be setting up oil investors for a rally this year, if history is any guide.

The so-called forward curve of futures contracts traded on the New York Mercantile Exchange suggests oil will rise 28 percent to $60.10 a barrel by December. The curve looks almost the same as 10 years ago, after Russia’s default and the collapse of the Long-Term Capital Management LP hedge fund raised concerns that a global economic slowdown would reduce energy demand. Crude prices fell 25 percent in the final quarter of 1998, the steepest drop in seven years.

Bets on a recovery paid off then as the Organization of Petroleum Exporting Countries cut production 6.9 percent, causing prices to more than double in 1999. Now, OPEC is pledging to reduce supply 9 percent, companies from Royal Dutch Shell Plc to Valero Corp. are postponing new energy projects and central banks are cutting interest rates to end the worst financial crisis since World War II.

“The world economy will get into a more stable environment most probably in the second half of next year,” Christoph Eibl, who helps manage more than $1 billion at Tiberius Asset Management AG in Zug, Switzerland, said Dec. 31. “Commodities are thus due for a rebound. Crude oil has the best potential.”

Eibl’s Absolute Return Commodity Fund gained 7.5 percent last year in part by betting on agricultural commodities and industrial metals. He beat the Standard & Poor’s GSCI Index of 24 commodities, which dropped 43 percent, and oil, which fell 54 percent. A 30 percent gain this year would be the most since the 57 percent jump in 2007.

Forward Market

Traders are already taking advantage of prices in the forward market exceeding those for immediate delivery, a so- called contango. About 26 million barrels of oil may be stored in tankers until later in the year. The crude, valued at $1.2 billion at today’s prices, will be worth $1.57 billion based on December contracts, potentially locking in a profit for investors after expenses for financing, storing and insuring the oil.

Crude for February delivery traded at $46.89 a barrel at 9:50 a.m. in London today, compared with $60.10 for the December 2009 contract. At the end of December 1998, oil for February 1999 was at $12.05, compared with $13.78 for December of that year, a difference of 14 percent.

Twenty-eight of 30 analysts tracked by Bloomberg forecast higher prices by the end of 2009, with a median fourth-quarter estimate of $70.

Most Bearish

Adam Sieminski, the chief energy economist at Deutsche Bank AG in Washington, is the most bearish. He said in December that oil will trade at $40 in the fourth quarter, almost 14 percent lower than the Jan. 2 close, data compiled by Bloomberg show. Slowing economies may cut demand by about 700,000 barrels a day this year, he said.

“While commodity prices have fallen sharply from their July 2008 peaks, I see a further 15 to 20 percent downside risk for commodities into 2009 and maybe a recovery of those prices only toward the end of the year if there are signals of a global economic recovery,” said New York University Professor Nouriel Roubini, who predicted the global financial crisis.

The duration of the slowdown remains the biggest risk to a rebound in raw materials. Japan, the world’s second-biggest economy, may not return to growth until the fourth quarter, while the euro-area will shrink through this year, according to Bloomberg surveys of economists.

Oil rallied in 1999 as OPEC reduced output by 1.71 million barrels a day, equal to what is pumped today by Libya, the largest producer in North Africa.

Reduced Supplies

The group reduced supplies after Russia’s default in August 1998 sparked concerns about a meltdown in financial markets and Long-Term Capital Management’s $4 billion loss in leveraged trading strategies forced the New York Fed to organize a rescue of the fund by 14 banks and securities firms.

Last year was even worse. Commodities prices fell the most in five decades as crude dropped more than $100 from the peak of $147.27 in July. Losses and writedowns at financial firms rose to hundreds of billions of dollars and simultaneous recessions hit the U.S., Europe and Japan for the first time since World War II. The Standard & Poor’s 500 Index tumbled 38 percent and about $29 trillion of global equity market value evaporated.

The combination of central banks pumping trillions of dollars into the global financial system and OPEC’s resolve to stop the plunge in crude is making investors more bullish.

‘Bring Stability’

OPEC is “determined to bring stability to the oil market,” Saudi Oil Minister Ali al-Naimi said Dec. 21 in London, and Saudi Arabia’s King Abdullah said in November that $75 was a fair price. That month his nation cut output by 3.2 percent, the most since April 2006, data compiled by Bloomberg show.

OPEC will reduce daily crude shipments by 1 percent in the four weeks to Jan. 17 as the group enacts the supply cuts it agreed in Algeria last month, according to industry consultant Oil Movements.

The Federal Reserve cut its benchmark interest rate to as low as zero for the first time and the incoming administration of President-elect Barack Obama will seek as much as $850 billion in new spending and programs, congressional officials have said. China unveiled a 4 trillion-yuan ($585 billion) economic stimulus plan in November and European Union leaders are drawing up packages worth about a combined 200 billion euros ($278 billion).

U.S Shrinks

The U.S. economy will shrink 2.4 percent this quarter, following a contraction of 4.35 percent in the three months that just ended, according to economists surveyed by Bloomberg. The world’s biggest oil consumer will contract 0.5 percent in the second quarter before expanding 1.3 percent and 1.8 percent in the next two quarters, the forecasts show.

“Once these economies kick in again with the money supply pouring into these economies, everybody is going to be caught short with no inventory of these commodities and then commodity prices will move up again,” said Mark Mobius, executive chairman of Templeton Asset Management Ltd. in Singapore, who oversees about $26 billion in emerging-market stocks.

Oil tumbled almost $115 a barrel from its July record. Pump prices for gasoline in the U.S. that peaked at an average $4.165 a gallon are down to $1.67 nationwide, according to the Energy Department.

“Low prices in themselves do not normally create demand for commodities but for oil they do,” said Tim Mercer, chief investment manager at Hong Kong-based hedge fund Musahi Capital Ltd. Should the economy recover this year, “$80 to $100 oil is quite possible,” he said.

World Consumption

World oil consumption will increase by 400,000 barrels a day, or 0.5 percent, to 86.3 million a day this year, according to the Paris-based International Energy Agency. Oil demand in 2008 fell for the first time since 1983, the IEA estimated.

A rebound would reward everyone from Irving, Texas-based Exxon Mobil Corp., the world’s largest publicly traded company, to Saudi Arabia, the biggest producing nation. The Persian Gulf state’s budget drops into a deficit at prices below $50 a barrel, according to Fitch Ratings.

Until prices improve, oil companies are delaying investments and shutting plants, threatening to reduce supply further.

Shell, based in The Hague, postponed a decision to expand its Athabasca oil-sands project in Canada. Valero Energy, the largest U.S. refiner, said in October it will defer projects to cut spending by about $500 million, or 17 percent.

Refinery Halt

ConocoPhillips agreed to halt bidding for a planned 400,000 barrel-a-day export refinery in Saudi Arabia because of falling prices.

The recovery in oil will pace at least a 20 percent return from commodities in 2009, Tiberius’s Eibl said. Futures contracts signal at least a 10 percent appreciation in corn and wheat on the Chicago Board of Trade and a 12 percent gain in cotton. Copper on the London Metal Exchange will lag behind, while gold is likely to end 2009 little changed, futures show.

“The dollar is going down,” said Jim O’Neill, chief economist at Goldman Sachs Group Inc. in London. “If that’s right, gold is definitely going to continue its recent recovery and I think that might give some support to oil prices as well, despite the weak fundamentals.”

The U.S. Dollar Index traded on ICE futures in New York, which tracks the currency against six others, advanced 6 percent last year, the best performance since 2005.

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