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Oil prices 'may drop to $25 a barrel next year'

Manama, December 18, 2008

Crude oil will fall to $25 a barrel next year, Chinese growth will slow to zero, stock markets will continue to fall and the commodities bubble will burst, according to a forecast by Saxo Bank.

Saxo Bank made these predictions for the year ahead in a forecast, which it admits appears outrageous. But it adds that the year will be a turning point, because things can't get much worse.

"There will be severe social unrest in Iran as lower oil prices mean that the government will not be able to uphold the supply of basic necessities," according to Saxo Bank chief economist David Karsb¿l.

"Crude will trade at $25 as demand slows due to the worst global economic contraction since the great depression.

"The S&P index will hit 500 next year because of falling earnings, vaporising housing equity and increased cost of funds in the corporate sector.

"The EU is likely to crack down on excessive government budget deficits in several member states, and Italy could live up to previous threats and leave the euro completely."

The forecast argues that the euro will fall to 0.95 against the dollar and then recover to 1.30 as European bank balances are under tremendous pressure because of exposure to the faltering Eastern European markets and intra-European economic tensions.

Chinese GDP growth will drops to zero. The export driven sectors in the Chinese economy will be hurt significantly by the free-fall economic activity in global trade especially to the US.

"It is not even outrageous to call this the worst economic crisis ever," said Karsb¿l.

"We have, regrettably, been rather precise in almost all predictions from last year. What used to be outrageous now seems to be the norm.

"In a year when markets and economies have fluctuated more widely than ever before nothing seems out of the ordinary or impossible. We believe that next year will be equally unpredictable and therefore have made 10 outrageous predictions, largely focusing what might happen to global indices and currencies. The good thing is, overall, we predict next year will be a turning point because it can't get much worse."

"This year, the S&P 500 has fallen more than 25pc below its 1,182 high of last year, world oil prices got close to the predicted high of $175, and UK growth has turned negative," he said.

l Oil prices tumbled below $40 yesterday for the first time since the summer of 2004. Light, sweet crude for next month delivery tumbled eight per cent, or $3.54, to settle at $40.06 on the New York Mercantile Exchange.

Benchmark crude prices fell as low as $39.88, a price last seen in July 2004. In London, February Brent crude rose 97 cents to settle at $45.53 a barrel on the ICE Futures exchange.




Tags: Oil | Saxo Bank | Predictions |

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