Crude Oil to Remain Depressed

Yesterday, crude oil futures settled below $75 per barrel, hitting a three month low. Although the U.S. Energy Information Administration (EIA) recently raised its forecasts on oil prices, supply and demand forces suggest otherwise and point to the likelihood that these price levels will remain intact, if not witness a further decline.

On the demand side, demand in the US and other major oil consuming nations is expected to remain sluggish as governments try to bolster economies and some attempt to cut deficits. In fact, the International Energy Agency (IEA), estimates that world oil demand will average 86.4 million barrels a day, 220,000 barrels fewer than forecasted in the previous month. One reason behind this revised forecast is weaker than expected consumption in some parts of Asia and a worsening economic situation in parts of the Middle East. This revision was also driven by changes to historical demand data for 2008 which are reflected in the total 2009 and 2010 consumption estimates.