SYDNEY (MarketWatch) — Oil futures recovered some lost ground in early electronic trading on Monday, but analysts said prices could drop as low as $90 a barrel later this month on concerns about global growth and an unwinding of speculative positions.
Benchmark light, sweet crude for June delivery CLM11 +1.54% gained $1.28, or 1.3%, to $98.44 a barrel on the New York Mercantile Exchange during Asian trading hours.
The gains followed sharp losses across commodity markets last week, with crude falling nearly 15%, to close the week at $97.18.
Despite a stronger-than-expected U.S. jobs report Friday helping to soothe concerns about the strength of the global recovery, some analysts anticipate a further softening in crude prices.
Analysts at MF Global said that with the exception of geopolitical concerns, crude fundamentals "are not necessarily that bullish," and forecast oil futures could drop as low as $90 a barrel this month.
The analysts said production out of Saudi Arabia has made up for the shortfall created by the Libyan civil war, while the Organization of the Petroleum Exporting Countries "is making noises about increasing quotas once they meet in June."
Demand destruction — where rising commodity prices undermine economic growth, and results in weaker demand for those commodities — is another factor putting pressure on energy prices, they said.
"We are seeing evidence of demand destruction, emanating from higher U.S. gasoline prices, coupled with the fact that the Japanese economy remains hobbled and has yet to reclaim its rightful fair share of the energy pie," the analysts wrote in a research note.
"There has been a record amount [of] length built up by non-commercial speculative money in crude, and we suspect that more of these long positions will be flushed out over the course of the month," the analysts said.
Analysts at Capital Economics also forecast crude will sink to $90 a barrel — but over a longer time frame, expecting oil to hit that level by the end of the year — with prices pressured by demand destruction out of the U.S. and monetary tightening in emerging markets.
"We expect oil to fall further as the global economy slows, the dollar continues to rebound, and the risk premium due to unrest in the Middle East eventually fades, taking prices back below $90 per barrel by year-end," the analysts wrote in a research note.
