7 Dubai – Daily News from Dubai to the world

As the global economic turmoil batters the world’s biggest banks and financial institutions, concerns are growing that the Asian sporting events they support could be bundled into touch.
This weekend, Hong Kong hosts its annual Rugby Sevens tournament, traditionally an excuse for the region’s high-flying financiers to jet into the southern Chinese city, dress up in costume and overindulge on hospitality.

But as financial giants take their begging bowls to governments, such corporate largesse is decidedly out of favour.

“Activity around this year’s rugby sevens will be a fraction of what we did last year in recognition of the very different market environment we now operate in,” said a spokeswoman for Royal Bank of Scotland (RBS).

RBS, long a stalwart supporter of rugby, has received more than $29 billion (Dh107 billion) in bailouts from the British government.

Other major firms have either sublet their boxes – which can each cost around $80,000 a year – or scaled back the party, according to organisers and reports.

This reduction in corporate entertainment reflects the wider recession-driven belt-tightening, where any non-business spending comes under careful scrutiny, including sponsorship of sports events.

“You will find that events will no longer be supported simply because they happen to have been the favourite pastime of the chief executive,” said Hass Aminian, a director of business development at global sports marketing firm Sport Five.

“The deals will have to be run on even more strict business models,” he said, adding that fewer deals had been agreed in recent months.

The Asian sports marketing industry has boomed in the past 10 years, in particular since the success of the 2002 World Cup in South Korea and Japan.

It has provided a crucial mechanism for global firms to raise their profile in the region and for regional firms to let the world know about their products.

Aminian said it was very difficult to quantify the entire Asian sports marketing sector, but its importance can be demonstrated by last year’s Beijing Olympics, which attracted $866 million from its 12 leading sponsors.

However, the sports that have benefited from the aggressive increase in activity are now having to scramble for support.

In December, Japanese automaker Honda announced it was scrapping its Formula One team, as the general export market for its cars collapsed.

The firm spent an estimated $400 million on the glamorous sport every year, a sum it could no longer justify, and the team was only saved from collapse earlier this month by former principal Ross Brawn.

Fellow Japanese automaker Suzuki pulled out of the World Rally Championship soon after Honda’s decision, citing the “global economic turmoil”.

Fuji Heavy Industries, maker of Subaru cars, also dropped out of the championship, while motorcycle maker Kawasaki said in January it was pulling out of the MotoGP.

Swiss bank UBS has pulled its five-year sponsorship of the Hong Kong Open golf tournament after coughing up $2.5 million in prize money in 2008, amid huge losses.

Even HSBC, one of the few global banks to avoid bailouts, said it was weighing up its sponsorship of golf tournaments, including the two-million-dollar Women’s Champions in Singapore.

“Losses are linked with the main business objectives and these do change. We might consolidate in one market and grow in another. But you don’t stop marketing in a downturn,” Giles Morgan, head of sponsorship for the British-based bank, told the Straits Times.

Reports of new deals between sports apparel giant Nike and the Chinese Super League football competition, as well as logistics firm DHL’s backing for the Asian Football Confederation’s Champions League are signs that support will continue for major events.

“Niche sports that try to sell themselves as a mass awareness event will be in trouble,” said Aminian.

“But bigger sports like football will continue to offer value to both big and small brands.”

Many finance firms are determined to keep using sport as an opportunity to forget the gloomy balance sheets.

CLSA, an Asia-based brokerage, will entertain clients with booze and dancing girls in its Hong Kong Sevens corporate box, although the usual record-spinning DJ has been substituted for an IPod.

But the cost-cutting hasn’t dampened CLSA’s sense of humour: it will be serving beer under its own cheeky label declaring the brew to be “free of taxpayer’s money, conflicted advice and credit”.

As the global economic turmoil batters the world’s biggest banks and financial institutions, concerns are growing that the Asian sporting events they support could be bundled into touch.
This weekend, Hong Kong hosts its annual Rugby Sevens tournament, traditionally an excuse for the region’s high-flying financiers to jet into the southern Chinese city, dress up in costume and overindulge on hospitality.

But as financial giants take their begging bowls to governments, such corporate largesse is decidedly out of favour.

“Activity around this year’s rugby sevens will be a fraction of what we did last year in recognition of the very different market environment we now operate in,” said a spokeswoman for Royal Bank of Scotland (RBS).

RBS, long a stalwart supporter of rugby, has received more than $29 billion (Dh107 billion) in bailouts from the British government.

Other major firms have either sublet their boxes – which can each cost around $80,000 a year – or scaled back the party, according to organisers and reports.

This reduction in corporate entertainment reflects the wider recession-driven belt-tightening, where any non-business spending comes under careful scrutiny, including sponsorship of sports events.

“You will find that events will no longer be supported simply because they happen to have been the favourite pastime of the chief executive,” said Hass Aminian, a director of business development at global sports marketing firm Sport Five.

“The deals will have to be run on even more strict business models,” he said, adding that fewer deals had been agreed in recent months.

The Asian sports marketing industry has boomed in the past 10 years, in particular since the success of the 2002 World Cup in South Korea and Japan.

It has provided a crucial mechanism for global firms to raise their profile in the region and for regional firms to let the world know about their products.

Aminian said it was very difficult to quantify the entire Asian sports marketing sector, but its importance can be demonstrated by last year’s Beijing Olympics, which attracted $866 million from its 12 leading sponsors.

However, the sports that have benefited from the aggressive increase in activity are now having to scramble for support.

In December, Japanese automaker Honda announced it was scrapping its Formula One team, as the general export market for its cars collapsed.

The firm spent an estimated $400 million on the glamorous sport every year, a sum it could no longer justify, and the team was only saved from collapse earlier this month by former principal Ross Brawn.

Fellow Japanese automaker Suzuki pulled out of the World Rally Championship soon after Honda’s decision, citing the “global economic turmoil”.

Fuji Heavy Industries, maker of Subaru cars, also dropped out of the championship, while motorcycle maker Kawasaki said in January it was pulling out of the MotoGP.

Swiss bank UBS has pulled its five-year sponsorship of the Hong Kong Open golf tournament after coughing up $2.5 million in prize money in 2008, amid huge losses.

Even HSBC, one of the few global banks to avoid bailouts, said it was weighing up its sponsorship of golf tournaments, including the two-million-dollar Women’s Champions in Singapore.

“Losses are linked with the main business objectives and these do change. We might consolidate in one market and grow in another. But you don’t stop marketing in a downturn,” Giles Morgan, head of sponsorship for the British-based bank, told the Straits Times.

Reports of new deals between sports apparel giant Nike and the Chinese Super League football competition, as well as logistics firm DHL’s backing for the Asian Football Confederation’s Champions League are signs that support will continue for major events.

“Niche sports that try to sell themselves as a mass awareness event will be in trouble,” said Aminian.

“But bigger sports like football will continue to offer value to both big and small brands.”

Many finance firms are determined to keep using sport as an opportunity to forget the gloomy balance sheets.

CLSA, an Asia-based brokerage, will entertain clients with booze and dancing girls in its Hong Kong Sevens corporate box, although the usual record-spinning DJ has been substituted for an IPod.

But the cost-cutting hasn’t dampened CLSA’s sense of humour: it will be serving beer under its own cheeky label declaring the brew to be “free of taxpayer’s money, conflicted advice and credit”.

As the global economic turmoil batters the world’s biggest banks and financial institutions, concerns are growing that the Asian sporting events they support could be bundled into touch.
This weekend, Hong Kong hosts its annual Rugby Sevens tournament, traditionally an excuse for the region’s high-flying financiers to jet into the southern Chinese city, dress up in costume and overindulge on hospitality.

But as financial giants take their begging bowls to governments, such corporate largesse is decidedly out of favour.

“Activity around this year’s rugby sevens will be a fraction of what we did last year in recognition of the very different market environment we now operate in,” said a spokeswoman for Royal Bank of Scotland (RBS).

RBS, long a stalwart supporter of rugby, has received more than $29 billion (Dh107 billion) in bailouts from the British government.

Other major firms have either sublet their boxes – which can each cost around $80,000 a year – or scaled back the party, according to organisers and reports.

This reduction in corporate entertainment reflects the wider recession-driven belt-tightening, where any non-business spending comes under careful scrutiny, including sponsorship of sports events.

“You will find that events will no longer be supported simply because they happen to have been the favourite pastime of the chief executive,” said Hass Aminian, a director of business development at global sports marketing firm Sport Five.

“The deals will have to be run on even more strict business models,” he said, adding that fewer deals had been agreed in recent months.

The Asian sports marketing industry has boomed in the past 10 years, in particular since the success of the 2002 World Cup in South Korea and Japan.

It has provided a crucial mechanism for global firms to raise their profile in the region and for regional firms to let the world know about their products.

Aminian said it was very difficult to quantify the entire Asian sports marketing sector, but its importance can be demonstrated by last year’s Beijing Olympics, which attracted $866 million from its 12 leading sponsors.

However, the sports that have benefited from the aggressive increase in activity are now having to scramble for support.

In December, Japanese automaker Honda announced it was scrapping its Formula One team, as the general export market for its cars collapsed.

The firm spent an estimated $400 million on the glamorous sport every year, a sum it could no longer justify, and the team was only saved from collapse earlier this month by former principal Ross Brawn.

Fellow Japanese automaker Suzuki pulled out of the World Rally Championship soon after Honda’s decision, citing the “global economic turmoil”.

Fuji Heavy Industries, maker of Subaru cars, also dropped out of the championship, while motorcycle maker Kawasaki said in January it was pulling out of the MotoGP.

Swiss bank UBS has pulled its five-year sponsorship of the Hong Kong Open golf tournament after coughing up $2.5 million in prize money in 2008, amid huge losses.

Even HSBC, one of the few global banks to avoid bailouts, said it was weighing up its sponsorship of golf tournaments, including the two-million-dollar Women’s Champions in Singapore.

“Losses are linked with the main business objectives and these do change. We might consolidate in one market and grow in another. But you don’t stop marketing in a downturn,” Giles Morgan, head of sponsorship for the British-based bank, told the Straits Times.

Reports of new deals between sports apparel giant Nike and the Chinese Super League football competition, as well as logistics firm DHL’s backing for the Asian Football Confederation’s Champions League are signs that support will continue for major events.

“Niche sports that try to sell themselves as a mass awareness event will be in trouble,” said Aminian.

“But bigger sports like football will continue to offer value to both big and small brands.”

Many finance firms are determined to keep using sport as an opportunity to forget the gloomy balance sheets.

CLSA, an Asia-based brokerage, will entertain clients with booze and dancing girls in its Hong Kong Sevens corporate box, although the usual record-spinning DJ has been substituted for an IPod.

But the cost-cutting hasn’t dampened CLSA’s sense of humour: it will be serving beer under its own cheeky label declaring the brew to be “free of taxpayer’s money, conflicted advice and credit”.

The UAE Government is not discussing value added tax (VAT) at the moment and would not be doing so in the near future, Emirates Business has learned.

According to Mohammed Ahmad bin Abdul Aziz, Director-General of the UAE Ministry of Economy, VAT is “not on the table”. “It’s not up for discussion… it’s not on the table at the moment and we don’t foresee that happening in the near future,” he said on the sidelines of the Arab Investment Forum yesterday.

Hisham Abdullah Al Shirawi, Second Vice-Chairman of Dubai Chamber of Commerce and Industry, said he is not sure whether VAT will be implemented, adding that in times like these, the government is rather expected to lower its service fees.

“I’m not sure whether VAT will be implemented,” he told Emirates Business. “I would expect the government to take certain actions to minimise governmental fees and the cost of operating business in the private sector so that it can be more competitive and much more active.

“If you need to reduce the impact of this crisis, you need to have the private sector active. The more competitive you make it, the more active it will be. And consequently the faster we’ll be able to reduce the impact of this crisis,” he added.

In June last year, a top official from Dubai Customs said federal lawmakers were drafting legislation for implementation of VAT in early 2009.

Abdul Rahman Al Saleh, Dubai Customs’ Executive Director, had said the tax would be two to five per cent and would help compensate for lost revenue when the customs duty is scrapped upon introduction of VAT.

Later, in August, Saeed Khalifa Saeed Al Marri, Deputy Director-General of the UAE Federal Customs Authority, was quoted as saying that replacing import tariffs with VAT might not be possible unless all the six GCC countries adopt the system together. “VAT has not yet been approved. The government is studying the impact and wants to know all the positives and negatives, so it might not do it at all… maybe by 2010,” he was quoted by a news agency.

The UAE, being the third largest oil producer in the Organisation of Petroleum Exporting Countries (Opec), does not levy income tax on most businesses and individuals, and earns majority of its revenues from crude oil sales.

Dubai-based port operator DP World said on Wednesday there was no end in sight to a falloff in activity caused by the global downturn, after reporting an 8 per cent drop in trade volumes in the first two months of 2009.

The company, one of the world’s largest container operators, reported a 48 per cent rise in headline 2008 results as profit after tax for continuing operations rose to $621 million (Dh2.28bn), but only after a sharp contraction in the last quarter of the year. “This volume decline has continued into 2009 and in the first two months of the year we have seen an average decline of 8 per cent in consolidated volume across the group,” the company said in a statement.

Shares in the company dipped as much as 4.5 per cent in early trading before recovering to trade flat. “The volume deceleration we saw in the last quarter of 2008 has continued into early 2009 and shows little sign of easing in the foreseeable future,” the company said.

The company said it would delay adding capacity until it saw an increase in demand and that it would consider new options to address the fall in its share price, which hit a low of $0.17 on March 5 after a high of $1.25 on January 4, 2008. “Over the next few months, the board will evaluate all available options to address its continued disappointment with the market’s valuation of the company,” DP World said.

Nabil Ahmed, analyst at Deutsche Bank, said the results met expectations but cut the company’s share price target to $0.30, saying the share price slide – down 46 per cent so far this year while peers are up 4 percent – made it a bargain. “Management is now seriously addressing the falling volumes issue by drastically cutting new capacities and costs,” Ahmed said in a note to clients. Deutsche Bank upgraded its rating on DP World to “buy”. “Key risks include further deterioration in global trade, high exposure to Dubai’s weakening economy, which accounts for circa 50 percent of profits, and capacity utilisation rate, which is a key factor influencing margins,” Ahmed said.

DP World operates 48 marine terminals and 13 new port developments in 31 countries worldwide.

HSBC UK says as many as 1,200 staff in the United Kingdom may be laid off following a review of operations. The affected staff represent about 2 per cent of HSBC’s 58,000 UK employees.

The company said on Wednesday that the cuts are being made in information technology, human resources and other support operations, not in front-line branch staff. HSBC says some employees would be able to take other positions within the company.

UK managing director Paul Thurston says “the operating environment for banks in the UK is extremely challenging and will remain so for some time.”

At the start of the month, HSBC reported that its net profit fell 70 per cent in 2008 to $5.7 billion.

Brent crude prices will average $52 a barrel in 2009, Bank of America subsidiary Merrill Lynch said, revising its previous estimates upward by $2 a barrel.

Predicting an oil price of $62 a barrel in 2010, Merrill Lynch said that the steps taken by governments to prevent their economies from falling into recession are slowly boosting energy demand. Huge refinery capacity being added across the world would contribute in keeping prices of oil products low for the next three years, said a Merrill Lynch report prepared by commodities analyst Francisco Blanch.

Brent crude for May delivery last traded at $51.22 a barrel on London’s ICE Futures Europe exchange having risen 1.1 per cent from its previous day’s close.

Nymex crude for April delivery closed at $51.06 a barrel on Saturday.

The upward revision in oil prices comes close on the heels of an Opec meeting in Vienna in which the members decided not to further shave off supplies.

The Opec has reduced daily output targets by 4.2 million barrels since September to prevent a supply glut.

Members need to trim about 800,000 barrels a day to comply with the quotas that went into effect in January. Richard Savage, Head of Energy Research at London-based Mirabaud Securities, had recently said that most of the Opec members other than Saudi Arabia are not complying with the cuts that became effective in January this year.

“We are revising up our 2009 Brent forecast to 2009 Brent forecast to $52 a barrel from $50 per barrel on the back of a tighter-than-expected oil market balance as we had into second half of 2009. The combination of sharp Opec output cuts in recent months and the worsening outlook for non-Opec production means less availability in second half of 2009,” Merrill Lynch said in a 24-page report.

“Additionally, sharp interest cuts across a broad range of EMs (Energy Markets) coupled with expansive fiscal policies, should help boost energy demand for prices, or both over the next year,” the report added.

Meanwhile, news reports yesterday said that oil prices may subside in the immediate future.

Seventeen of 33 analysts surveyed by Bloomberg News said futures will fall in the week ending March 27.

Twelve of the respondents said that the crude prices will increase and four said that there will be little change.

The reluctance of governments across the world to guarantee debts may serve as a rider to its forecasts Merrill Lynch said. “The main risk to our view remains a major sovereign debt crisis that creates a widespread contagion to the healthier EMs.”

Merrill Lynch said that the growth of production in non-Opec countries this year will not be as high as it had earlier expected.

“We are also reducing our non-Opec supply growth outlook from 271,000 b/d for 2009 down to -43,000 b/d, although this figure could still be much lower.

“On the demand side, we now expect a global oil demand contraction of 1.20 million b/d this year, and an increase of just 826,000 b/d next year.”

Making another important statement, Merrill Lynch said that the oil sand projects will be viable at 25 per cent lower than the earlier prevalent prices.

Most of the projects located in Canada, which were earlier viable for extraction of oil if it traded at $90 a barrel, will now be viable at 25 per cent lower prices.

“Given the sharp drop in the global economy, we now believe a cost reduction of 25 per cent in oil sands projects is achievable over the next few years. If achieved, this could drive the required oil price to generate acceptable returns from $90/bbl back down to the $70-$75/bbl range. We lower our long-term price assumption to $72 accordingly, but we still expect some price volatility around this figure,” it said.

Merrill Lynch said that the cuts in production made by Opec members has “created a floor” for the global crude prices. “Against our initial expectations, Opec production cutbacks have been very significant. From a peak of 30.3 million b/d, Opec-11 crude oil production has come down by 4.9 million b/d to about 25.4 million b/d, helping create a floor to global crude oil prices.” It said major oil producers like Saudi Arabia and Kuwait have cut production beyond their allotted quota.

“Moreover, it is important to note that Opec has remained a rather cohesive group during the last six months, although Saudi Arabia has continued to deliver the lion’s share of the production cuts.

“In fact, both Saudi Arabia and Kuwait have cut production beyond the targets imposed by the organisation, with Iran, Angola and Libya lagging substantially behind,” it added.

Merrill Lynch said the fast declining consumption rate has been stemmed.

“In the United States, the latest Energy Information Agency figures suggest that gasoline demand is expanding at a rate of 1.6 per cent relative to last year. In fact, after a year of extreme weakness in gasoline demand, it would appear that consumption has stabilised.

“Meanwhile, other key indicators of demand, including global air traffic, suggest that the rate of contraction has stabilised in the consumer-linked share of the global oil demand pie. In particular, the rate of contraction in Europe and Asia seems to have turned, while North American demand is arguably not falling as fast.”

In a rather surprising estimate, Merrill Lynch said oil markets may run into deficits in the second half of 2009.

“Due to a sharp contraction in oil output and a more stable demand outlook, inventories will likely not increase as fast going forward. This is particularly true for the United States, where crude oil stocks will likely draw going forward. In fact, our estimates suggest that the global oil market could move from a very large surplus into a deficit in 2H09. While we still see OECD inventories building seasonally in 2Q09, we believe a draw is likely in 3Q09.”

Merrill Lynch said that there will be a slow recovery in oil demand the next year.

“While inventories could draw in 2H09, adding upward pressure on crude oil prices, we now see a shallower global oil demand recovery next year.

“We expect a global oil demand contraction of 1.2 million b/d in 2009, up from our November estimate of a 400,000 b/d pullback. Yet we only see a modest recovery of 826,000 b/d in oil demand next year from a depressed level of 85 million b/d this year,” it said.

Merrill Lynch said that its growth forecasts are based on the expected growth of economy of the countries.

“In part, our view is linked to the muted OECD growth recovery expected United States barely expanding by one per cent next year, any increase in global oil demand will rely again on the slightly brighter outlook for emerging markets.”

Consequentially, Merrill Lynch lowered the 2010 forecast for Brent at $62 a barrel. The oil contango (future price higher than the current price) would ease in 2010, Merrill Lynch added.

“Given the shallower demand recovery and the increased spare capacity in refining and crude oil supply within Opec, we are now also lowering our 2010 WTI and Brent crude oil price forecasts from $70/bbl to $62/bbl. With the oil market turning more balanced and inventories heading for a draw, oil prices will likely strengthen in the near term.

However, long-dated prices are unlikely to follow suit, as the demand recovery will likely be shallow. In a market with abundant spare capacity and a tightening balance, the pronounced crude contango should go backward, or a flat curve.”

Brent crude prices will average $52 a barrel in 2009, Bank of America subsidiary Merrill Lynch said, revising its previous estimates upward by $2 a barrel.

Predicting an oil price of $62 a barrel in 2010, Merrill Lynch said that the steps taken by governments to prevent their economies from falling into recession are slowly boosting energy demand. Huge refinery capacity being added across the world would contribute in keeping prices of oil products low for the next three years, said a Merrill Lynch report prepared by commodities analyst Francisco Blanch.

Brent crude for May delivery last traded at $51.22 a barrel on London’s ICE Futures Europe exchange having risen 1.1 per cent from its previous day’s close.

Nymex crude for April delivery closed at $51.06 a barrel on Saturday.

The upward revision in oil prices comes close on the heels of an Opec meeting in Vienna in which the members decided not to further shave off supplies.

The Opec has reduced daily output targets by 4.2 million barrels since September to prevent a supply glut.

Members need to trim about 800,000 barrels a day to comply with the quotas that went into effect in January. Richard Savage, Head of Energy Research at London-based Mirabaud Securities, had recently said that most of the Opec members other than Saudi Arabia are not complying with the cuts that became effective in January this year.

“We are revising up our 2009 Brent forecast to 2009 Brent forecast to $52 a barrel from $50 per barrel on the back of a tighter-than-expected oil market balance as we had into second half of 2009. The combination of sharp Opec output cuts in recent months and the worsening outlook for non-Opec production means less availability in second half of 2009,” Merrill Lynch said in a 24-page report.

“Additionally, sharp interest cuts across a broad range of EMs (Energy Markets) coupled with expansive fiscal policies, should help boost energy demand for prices, or both over the next year,” the report added.

Meanwhile, news reports yesterday said that oil prices may subside in the immediate future.

Seventeen of 33 analysts surveyed by Bloomberg News said futures will fall in the week ending March 27.

Twelve of the respondents said that the crude prices will increase and four said that there will be little change.

The reluctance of governments across the world to guarantee debts may serve as a rider to its forecasts Merrill Lynch said. “The main risk to our view remains a major sovereign debt crisis that creates a widespread contagion to the healthier EMs.”

Merrill Lynch said that the growth of production in non-Opec countries this year will not be as high as it had earlier expected.

“We are also reducing our non-Opec supply growth outlook from 271,000 b/d for 2009 down to -43,000 b/d, although this figure could still be much lower.

“On the demand side, we now expect a global oil demand contraction of 1.20 million b/d this year, and an increase of just 826,000 b/d next year.”

Making another important statement, Merrill Lynch said that the oil sand projects will be viable at 25 per cent lower than the earlier prevalent prices.

Most of the projects located in Canada, which were earlier viable for extraction of oil if it traded at $90 a barrel, will now be viable at 25 per cent lower prices.

“Given the sharp drop in the global economy, we now believe a cost reduction of 25 per cent in oil sands projects is achievable over the next few years. If achieved, this could drive the required oil price to generate acceptable returns from $90/bbl back down to the $70-$75/bbl range. We lower our long-term price assumption to $72 accordingly, but we still expect some price volatility around this figure,” it said.

Merrill Lynch said that the cuts in production made by Opec members has “created a floor” for the global crude prices. “Against our initial expectations, Opec production cutbacks have been very significant. From a peak of 30.3 million b/d, Opec-11 crude oil production has come down by 4.9 million b/d to about 25.4 million b/d, helping create a floor to global crude oil prices.” It said major oil producers like Saudi Arabia and Kuwait have cut production beyond their allotted quota.

“Moreover, it is important to note that Opec has remained a rather cohesive group during the last six months, although Saudi Arabia has continued to deliver the lion’s share of the production cuts.

“In fact, both Saudi Arabia and Kuwait have cut production beyond the targets imposed by the organisation, with Iran, Angola and Libya lagging substantially behind,” it added.

Merrill Lynch said the fast declining consumption rate has been stemmed.

“In the United States, the latest Energy Information Agency figures suggest that gasoline demand is expanding at a rate of 1.6 per cent relative to last year. In fact, after a year of extreme weakness in gasoline demand, it would appear that consumption has stabilised.

“Meanwhile, other key indicators of demand, including global air traffic, suggest that the rate of contraction has stabilised in the consumer-linked share of the global oil demand pie. In particular, the rate of contraction in Europe and Asia seems to have turned, while North American demand is arguably not falling as fast.”

In a rather surprising estimate, Merrill Lynch said oil markets may run into deficits in the second half of 2009.

“Due to a sharp contraction in oil output and a more stable demand outlook, inventories will likely not increase as fast going forward. This is particularly true for the United States, where crude oil stocks will likely draw going forward. In fact, our estimates suggest that the global oil market could move from a very large surplus into a deficit in 2H09. While we still see OECD inventories building seasonally in 2Q09, we believe a draw is likely in 3Q09.”

Merrill Lynch said that there will be a slow recovery in oil demand the next year.

“While inventories could draw in 2H09, adding upward pressure on crude oil prices, we now see a shallower global oil demand recovery next year.

“We expect a global oil demand contraction of 1.2 million b/d in 2009, up from our November estimate of a 400,000 b/d pullback. Yet we only see a modest recovery of 826,000 b/d in oil demand next year from a depressed level of 85 million b/d this year,” it said.

Merrill Lynch said that its growth forecasts are based on the expected growth of economy of the countries.

“In part, our view is linked to the muted OECD growth recovery expected United States barely expanding by one per cent next year, any increase in global oil demand will rely again on the slightly brighter outlook for emerging markets.”

Consequentially, Merrill Lynch lowered the 2010 forecast for Brent at $62 a barrel. The oil contango (future price higher than the current price) would ease in 2010, Merrill Lynch added.

“Given the shallower demand recovery and the increased spare capacity in refining and crude oil supply within Opec, we are now also lowering our 2010 WTI and Brent crude oil price forecasts from $70/bbl to $62/bbl. With the oil market turning more balanced and inventories heading for a draw, oil prices will likely strengthen in the near term.

However, long-dated prices are unlikely to follow suit, as the demand recovery will likely be shallow. In a market with abundant spare capacity and a tightening balance, the pronounced crude contango should go backward, or a flat curve.”

Brent crude prices will average $52 a barrel in 2009, Bank of America subsidiary Merrill Lynch said, revising its previous estimates upward by $2 a barrel.

Predicting an oil price of $62 a barrel in 2010, Merrill Lynch said that the steps taken by governments to prevent their economies from falling into recession are slowly boosting energy demand. Huge refinery capacity being added across the world would contribute in keeping prices of oil products low for the next three years, said a Merrill Lynch report prepared by commodities analyst Francisco Blanch.

Brent crude for May delivery last traded at $51.22 a barrel on London’s ICE Futures Europe exchange having risen 1.1 per cent from its previous day’s close.

Nymex crude for April delivery closed at $51.06 a barrel on Saturday.

The upward revision in oil prices comes close on the heels of an Opec meeting in Vienna in which the members decided not to further shave off supplies.

The Opec has reduced daily output targets by 4.2 million barrels since September to prevent a supply glut.

Members need to trim about 800,000 barrels a day to comply with the quotas that went into effect in January. Richard Savage, Head of Energy Research at London-based Mirabaud Securities, had recently said that most of the Opec members other than Saudi Arabia are not complying with the cuts that became effective in January this year.

“We are revising up our 2009 Brent forecast to 2009 Brent forecast to $52 a barrel from $50 per barrel on the back of a tighter-than-expected oil market balance as we had into second half of 2009. The combination of sharp Opec output cuts in recent months and the worsening outlook for non-Opec production means less availability in second half of 2009,” Merrill Lynch said in a 24-page report.

“Additionally, sharp interest cuts across a broad range of EMs (Energy Markets) coupled with expansive fiscal policies, should help boost energy demand for prices, or both over the next year,” the report added.

Meanwhile, news reports yesterday said that oil prices may subside in the immediate future.

Seventeen of 33 analysts surveyed by Bloomberg News said futures will fall in the week ending March 27.

Twelve of the respondents said that the crude prices will increase and four said that there will be little change.

The reluctance of governments across the world to guarantee debts may serve as a rider to its forecasts Merrill Lynch said. “The main risk to our view remains a major sovereign debt crisis that creates a widespread contagion to the healthier EMs.”

Merrill Lynch said that the growth of production in non-Opec countries this year will not be as high as it had earlier expected.

“We are also reducing our non-Opec supply growth outlook from 271,000 b/d for 2009 down to -43,000 b/d, although this figure could still be much lower.

“On the demand side, we now expect a global oil demand contraction of 1.20 million b/d this year, and an increase of just 826,000 b/d next year.”

Making another important statement, Merrill Lynch said that the oil sand projects will be viable at 25 per cent lower than the earlier prevalent prices.

Most of the projects located in Canada, which were earlier viable for extraction of oil if it traded at $90 a barrel, will now be viable at 25 per cent lower prices.

“Given the sharp drop in the global economy, we now believe a cost reduction of 25 per cent in oil sands projects is achievable over the next few years. If achieved, this could drive the required oil price to generate acceptable returns from $90/bbl back down to the $70-$75/bbl range. We lower our long-term price assumption to $72 accordingly, but we still expect some price volatility around this figure,” it said.

Merrill Lynch said that the cuts in production made by Opec members has “created a floor” for the global crude prices. “Against our initial expectations, Opec production cutbacks have been very significant. From a peak of 30.3 million b/d, Opec-11 crude oil production has come down by 4.9 million b/d to about 25.4 million b/d, helping create a floor to global crude oil prices.” It said major oil producers like Saudi Arabia and Kuwait have cut production beyond their allotted quota.

“Moreover, it is important to note that Opec has remained a rather cohesive group during the last six months, although Saudi Arabia has continued to deliver the lion’s share of the production cuts.

“In fact, both Saudi Arabia and Kuwait have cut production beyond the targets imposed by the organisation, with Iran, Angola and Libya lagging substantially behind,” it added.

Merrill Lynch said the fast declining consumption rate has been stemmed.

“In the United States, the latest Energy Information Agency figures suggest that gasoline demand is expanding at a rate of 1.6 per cent relative to last year. In fact, after a year of extreme weakness in gasoline demand, it would appear that consumption has stabilised.

“Meanwhile, other key indicators of demand, including global air traffic, suggest that the rate of contraction has stabilised in the consumer-linked share of the global oil demand pie. In particular, the rate of contraction in Europe and Asia seems to have turned, while North American demand is arguably not falling as fast.”

In a rather surprising estimate, Merrill Lynch said oil markets may run into deficits in the second half of 2009.

“Due to a sharp contraction in oil output and a more stable demand outlook, inventories will likely not increase as fast going forward. This is particularly true for the United States, where crude oil stocks will likely draw going forward. In fact, our estimates suggest that the global oil market could move from a very large surplus into a deficit in 2H09. While we still see OECD inventories building seasonally in 2Q09, we believe a draw is likely in 3Q09.”

Merrill Lynch said that there will be a slow recovery in oil demand the next year.

“While inventories could draw in 2H09, adding upward pressure on crude oil prices, we now see a shallower global oil demand recovery next year.

“We expect a global oil demand contraction of 1.2 million b/d in 2009, up from our November estimate of a 400,000 b/d pullback. Yet we only see a modest recovery of 826,000 b/d in oil demand next year from a depressed level of 85 million b/d this year,” it said.

Merrill Lynch said that its growth forecasts are based on the expected growth of economy of the countries.

“In part, our view is linked to the muted OECD growth recovery expected United States barely expanding by one per cent next year, any increase in global oil demand will rely again on the slightly brighter outlook for emerging markets.”

Consequentially, Merrill Lynch lowered the 2010 forecast for Brent at $62 a barrel. The oil contango (future price higher than the current price) would ease in 2010, Merrill Lynch added.

“Given the shallower demand recovery and the increased spare capacity in refining and crude oil supply within Opec, we are now also lowering our 2010 WTI and Brent crude oil price forecasts from $70/bbl to $62/bbl. With the oil market turning more balanced and inventories heading for a draw, oil prices will likely strengthen in the near term.

However, long-dated prices are unlikely to follow suit, as the demand recovery will likely be shallow. In a market with abundant spare capacity and a tightening balance, the pronounced crude contango should go backward, or a flat curve.”