Merrill Sees $25 Oil Ahead

Oil prices are likely to keep falling until well into next year and could reach $25 a barrel before recovering, U.S. bank Merrill Lynch has said.

In a research report published on Thursday, it said oil prices should begin to rally in the second half of 2009.

Merrill Lynch recently cut its forecast for the average price of U.S. crude oil futures and North Sea Brent crude oil to $50 a barrel from a previous estimate for both crudes of $90.

"With demand vanishing across all key oil consuming regions, benchmark crude oil prices continue to plummet," it said. "In the short-run, market participants will focus on both OPEC and perhaps even non-OPEC producer responses to balance the market."

"A temporary drop below $25 is possible if the global recession extends to China and significant non-OPEC production cuts are required," it said.

In my view oil being an industrial commodity will suffer slow down in demand. Unless we see stability in financial sector, oil price is likely to stay below US$40. When this happens, all the investment on alternative energy (biofuel, solar, wind mill) will go to waste.