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Analysts: Oil prices likely to rally on the world market

05 January 2009 12:45 (UTC +04:00)

Oil tumbled from a record $147.27 a barrel reached on July 11.
In general, the trend of oil prices was downward in 2008.

As seen on the diagram, the oil prices declining rate leveled with the annual pace during the period of October-December during the exacerbation of the global financial crisis.
According to analysts, a sharp decline in oil prices is caused by the fact that the global financial crisis passed to the real sector, causing an economic crisis affecting both the consumer as well as the manufacturing sector.
For example, problems in the financial system adversely affected the profitability of investors and financial condition of companies.
Under the same supply volumes, the demand for oil in the manufacturing sector and demand for petroleum products, especially gasoline in the consumer sector declined, naturally leading to low prices. In parallel, trends developed such a way on the world that the OPEC countries that are major suppliers of oil decided not to sell their product at a low price.
In the fourth quarter, OPEC reduced oil production for the third time. Since September, the organization reduced the quota for daily oil production by 4.2 million barrels but in vain.
The impact of the recent output cut by OPEC on the market is expected in 2 months.
On the other hand, we must take into account that since the current transaction in the oil market are carried out on futures contracts, the oil market ism also affected by investment risks.
As a result of the global financial crisis, investors take their funds to buy gold and dollars, which results in a drop in the stock market.
Thus, along with the real demand, the speculative demand also fell in the oil market. In order to predict oil prices trends, it should be taken into account that low oil prices scaled down petroleum exploration and production. Currently, investors are returning to the stock market and therefore we can expect a gradual recovery of speculative demand.
On the other hand, unprofitable production lowers earnings of transnational companies. As a result, large corporations began to influence governments through political instruments. For this reason, the expansion of programs to restore the real sector is expected in developed countries, leading to increased demand.
Experts also predict recovery of world economy in mid-2009. In their view, the price of oil