Oil prices to subside: Economists

Oil prices to subside: Economists

The Jakarta Post, Jakarta

Defying mainstream perceptions that high oil prices are in for
the long run, economists at two foreign banks are predicting that
oil prices will subside toward the end of the year and in 2006.

Top economists from the Deutsche Bank and ANZ Bank said on
Tuesday that oil prices would soon recede to a level much lower
than US$60 a barrel.

Deutsche Bank chief economist Norbert Walter said at a media
briefing that he disagreed with those who claim oil prices could
only go one way, even to as high as $100, and said they were
exaggerating.

"My optimism is based on the fact that we are closing in to
the peak of oil prices in the cycle."

Walter projected that oil prices would reach an average of $54
a barrel in 2006, while for the rest of the year, it would hover
at $57.

On Tuesday, light, sweet crude for October on the New York
Mercantile Exchange was down 2 U.S. cents at $65.63 a barrel by
afternoon. On London's International Petroleum Exchange, October
Brent crude was up 17 U.S. cents at $64.67 a barrel.

His prediction was based on an expected slow down in the U.S.
economy, as regular increases in key interest rates by the
Federal Reserve would slightly apply the brakes on U.S. business
expansion. It would eventually reduce demand for oil, Walter
said.

According to a ANZ Bank study, throughout 2004, oil demand
from China and the U.S. accounted for 36 percent and 20 percent
of the world's total demand respectively.

Walter estimated that the Fed would continue raising interest
rates to 4.5 percent by early next year, from the current 3.5
percent.

Worldwide demand would also likely slightly decrease, in line
with an expected decrease in gross domestic product (GDP)
worldwide to 4.5 percent at the end of the year and 4.1 percent
at the end of 2006, from 5.1 percent recorded the end of last
year.

Amy Auster of ANZ Bank echoed Walter's argument, saying that
oil prices would not go beyond $70, citing also the rise in U.S.
interest rates, which she said would stand at 4.25 percent at the
end of year and 4.5 percent in January next year.

She projected that global oil prices would range between $55
and $60 per barrel for the rest of 2005 and $50 to $60 in 2006.
(006)