SINGAPORE: Oil prices are expected to continue on an upswing this year. Analysts said supply and demand imbalances will continue to push prices upwards despite the depressed global economy.

Just a few weeks ago, analysts were debating the possibility of oil prices falling below US$20 a barrel in 2009 as the global economy slows further.

In 2008, the black gold saw a rough ride, hitting highs of US$147 a barrel in July and slumping to a five-year low of US$33.87 a barrel last month. But oil prices have begun to regain lost ground in recent days.

While recent violence in Gaza may have contributed to the increase in prices, analysts said the spike is more likely caused by other issues.

David Ernsberger, editorial director (Asia), Platts, said: "With everything that passes after the turn of the new year, unfortunately for the consumer, the chance of (the price of oil) falling below US$20 looks less and less likely.

"We are seeing major problems between Russia and Europe for the natural gas market, which actually has a much bigger impact on the price of oil than the violence in Gaza.

"There are signs that demand for oil will be much stronger in the first quarter than expected, partly because of Russia withholding gas from Western Europe. There are a few other small things happening as well, suggesting that a big fall in oil (price) is not on the cards as much as it was at Christmas time."

One fifth of Europe's gas supply comes from Russia. This has left European consumers vulnerable when Moscow reduced volumes at the beginning of the month.

Industry experts have noted that following the rally in oil prices by almost 15 per cent over the last few days, they expect the momentum to remain on an uptrend.

For the moment, oil continues to hover around the US$50-a-barrel mark, but as a result of OPEC's record 2.2 million-barrel cut in January, along with talk of further cuts expected to be announced next month, prices are likely to continue to move higher.

For 2009, analysts are expecting oil prices to remain around US$50 to US$70-per-barrel mark.


- CNA/so