Oil’s Most Accurate See No Reverse of Worst Run Since 2008: Energy Markets

Brent oil will struggle to recover from its longest slump since the 2008 financial crisis as a weakening global economy cuts growth in demand to the lowest level for any fourth quarter in the past three years.

Brent crude will trade an average 2 percent higher than Oct. 5’s opening price of $101.81 a barrel during the final three months of the year, according to the mean prediction of 10 analysts whose third-quarter projections were the most accurate of 31 compiled by Bloomberg. Futures lost 8.6 percent in the third quarter, extending a 4.2 percent drop in the second.

Oil is falling as Saudi Arabia, the world’s biggest exporter, pumps crude at near-record levels and Libya revives production just as the economic slowdown shows signs of sapping demand. Consumption, which typically climbs toward the end of the year as the northern hemisphere’s winter approaches, will rise 4 percent this quarter, about half the levels of 2009 and 2010, according to the International Energy Agency.

“The outlook is deteriorating more and more, and the velocity is somewhat alarming,” said Eugen Weinberg, the Frankfurt-based head of commodities research at Commerzbank AG who predicts Brent may average less than $100 a barrel in the fourth quarter. “The risks to forecasts right now are to the downside, and not just on demand. Libyan production is coming back sooner than expected.”

Back-to-Back Decline

Brent will average $103.80 a barrel in the final three months of the year, based on the mean of the 10 most accurate forecasters tracked by Bloomberg. It settled at $99.79 on the ICE Futures Europe exchange on Oct. 4, after averaging $112.09 in the third quarter.

The 13 percent slide in futures in the past six months was the first back-to-back quarterly decline since the second half of 2008, when prices sank to a four-year low of almost $30 a barrel amid a slump in lending between banks that led to the collapse of Lehman Brothers Holdings Inc. Brent lost 11 percent in September this year, the biggest monthly drop since May 2010.

Oil exports from Libya are resuming as opposition forces cement their control over the country and hunt the deposed leader Muammar Qaddafi. The nation, home to Africa’s largest crude reserves, is producing 300,000 barrels a day, Oil Minister Ali Tarhouni said in Tripoli on Sep. 29. It pumped 1.6 million a day before the conflict started.

Saudi Arabia, the biggest producer in the Organization of Petroleum Exporting Countries, has yet to signal it will reduce production from the 9.76 million barrels a day it’s pumping even as Libya restarts operations. The kingdom began increasing output in April to compensate for the loss of Libya’s oil.

‘Heavyweights’

The highest estimates among the top-ranked 10 for Brent prices in the fourth quarter are at $115, by Barclays Plc, and $110, by Goldman Sachs Group Inc.

“Yes, there are some weak spots in demand, but the weakness seen continues to be less pronounced than that seen during the troughs of the 2008-2009 cycle,” said Amrita Sen, an analyst at Barclays in London. “Growth rates in demand heavyweights India and China continue to remain strong. And we remain cautious regarding the prospects of a swift reprise in Libyan production.”

Demand for oil is weakening as Europe struggles to contain its sovereign debt crisis while the economies of the U.S. and China, the biggest energy consumers, show signs of decelerating. U.S. consumer spending slowed in August as incomes unexpectedly fell, according to the Commerce Department. Manufacturing in China shrank a third month, the longest streak since 2009, an HSBC Holdings Plc and Markit Economics index showed Sept. 30.

Falling Demand

Fourth-quarter oil demand will increase by 400,000 barrels a day to an average of 90.2 million a day, the Paris-based IEA said in a Sept. 13 report. Consumption increased by 700,000 barrels a day in the same quarters of 2009 and 2010.

Brent averaged $112.09 a barrel from July 1 through Sept. 30. The closest forecast among 31 estimates compiled by Bloomberg before the quarter started was $112 by Pedro Moreno Alonso, a commodity strategist at Banco Bilbao in Madrid, followed by a prediction of $111.80 a barrel by Edward Morse, head of commodities research at Citigroup Inc. in New York. The third best was $114, by Goldman Sachs analysts led by Jeffrey Currie and David Greely. Commerzbank was fourth.

“Falling oil demand growth is paralleling the recent macroeconomic headlines,” said Morse, who predicts Brent will average $95 a barrel this quarter. “This downside tail risk is elevated as the euro zone struggles to prevent larger sovereign dominoes from falling.”

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