JPMorgan Cuts Forecasts on 2010, 2011 New York Oil Prices as Demand Slows

JPMorgan Chase & Co. lowered by 5.5 percent its forecast for New York oil prices this year on speculation a slowdown in global economies will limit crude’s potential to rise.

The bank cut to $77.25 a barrel its estimate for the average price of West Texas Intermediate crude on the New York Mercantile Exchange during the rest of 2010, from a forecast of $81.75 a barrel made last month, according to a monthly report e-mailed today. It lowered its forecast for 2011’s average price to $79.25 a barrel from $90.

“We see both lower prices and a tighter range ahead -- but with increased risks,” Lawrence Eagles, an analyst for the U.S. bank, wrote in the report. “Weaker economic growth, energy efficiency and Organization of Petroleum Exporting Countries intransigence provide downside risks.”

Crude may fall next week amid increases in U.S. supplies and OPEC production, a Bloomberg News survey showed. Crude oil has declined by 0.5 percent this year to $78.95 a barrel in New York, after rising 78 percent last year.

“There’s an increased drive towards energy efficiency and renewable energy in China,” said Henry Wang, managing director, of Beijing-based energy consultant Gate International Ltd. “This could create downward pressure on oil demand.”

Pressure on China’s oil demand, the world’s biggest energy user, affects global consumption, which may impact prices, Wang, who formerly worked for Royal Dutch Shell Plc. in China, said by phone from Beijing today.

Production Cuts

The absence of “significant” demand recovery in markets such as North America and Europe prompted Singapore-based Tri- Zen International Ltd. to cut its forecast in April for Brent Crude to $75 a barrel this year, said Tony Regan, a consultant in an e-mail today.

Oil prices may fall more than expected on lower demand and a risk OPEC member nations won’t adhere to production cuts, JPMorgan said.

“If demand drops, the Gulf Trio, Saudi Arabia, Kuwait and the United Arab Emirates are likely to demand cuts from ‘leaky’ members to rebalance the market, but any delay in response risks a fall in prices as low as $50 a barrel,” Eagles said.

The demand outlook in the projection has been moderated in recent months because of shifts in the bank’s economic forecasts, according to the report.

“This month sees further changes, which take down 2010 demand growth to 1.8 million barrels a day and 2011 to a ‘trend’ 1.5 million barrels a day,” Eagles said. “The net sum of our supply and demand changes reduces the call on OPEC by 1.2 million barrels a day at the end of 2011.”

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.

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