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Oil market to tighten over robust demand growth

Manama, January 5, 2011

The market for crude oil will gradually tighten in 2011 due to the continuing robust growth in demand from emerging markets, according to a report by Bank Sarasin.

The crude oil price is likely to fluctuate between $80 and $100 a barrel and will be mainly driven by cyclical factors, said a report by Bank Sarasin's thematic investments department entitled 'Crude Oil: What's moving oil prices in 2011?'

Sarasin provides a complete range of advisory services to private and institutional clients in the kingdom through Sarasin-Alpen (Bahrain) which is regulated by the Central Bank of Bahrain.

The report highlights that sharp price increases were prevented in 2010 as inventory levels and spare production capacity remained at a relatively high level despite steadily rising demand.

These still high levels should continue to provide a cushion in 2011, as they can be tapped into in the event of supply problems, the report said.

Nonetheless, a faster than expected decline in inventories and spare capacities might temporarily heighten fear of an oil shortage and thus encourage speculative investments. This could drive prices even higher than $100 per barrel at times.

However, Sarasin analysts suggest that a sustained increase in oil prices to go above $100 per barrel will only be in 2012, and expect the price at the end of this year to be around $98.

'We do not think that major oil price spikes are likely in 2011 because the oil market should continue to be well supplied,' said Bank Sarasin commodity strategist Eliane Tanner.

'Since we also expect global economic growth to weaken somewhat in 2011, growth in demand should be slightly more moderate than in 2010.'

Demand growth for crude oil from the member states of Organisation of Economic Co-operation and Development is likely to expand only weakly, or even stagnate in 2011 amid a loss of momentum in economic growth.

Structural factors such as demand for smaller cars and eco-friendly fuels as well as rapid rise in global natural gas supply are limiting growth in crude oil demand in industrialised countries.

'The emerging markets' demand for crude oil will continue their uptrend in 2011 whereby the robust growth of these economies should cause a gradual tightening in the crude oil market,' the report added.-TradeArabia News Service

Tags: Bank Sarasin | oil market |

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