Oil likely to cross $60, says Barclays

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June 12: Crude oil may exceed $60 a barrel this year as demand rises in China and the US and hurricanes threaten to reduce Gulf of Mexico production, according to Barclays Capital.

Also, slowing growth in Russian oil output this year will lead to an outright decline in 2006 from the country, further increasing concern about supply, said Barclays analysts Paul Horsnell and Kevin Norrish in an e-mailed report. A drop would mark the first in seven years in Russia, second only to Saudi Arabia in world oil production.

Oil prices in New York this week reached $55.55 a barrel, approaching the record of $58.28 set in April, following a rally in heating oil markets on expectations for a rise in consumption this winter. More hurricanes in the Atlantic Ocean this year may disrupt output and imports to the US, Barclays said.

“We believe that it will become very difficult to sell aggressively into a market on near-permanent hurricane watch, looking at crude inventory draws most weeks, and seeing weaker data from Russian supply and stronger data from Chinese demand,” the analysts said in a report on Wednesday.

Russia in May had its smallest increase in crude-oil production this year, as investments slowed after the dismantlement of OAO Yukos Oil Co, OOO Petromarket, a Moscow-based consulting company, said on June 2.

Yukos, once Russia’s biggest oil producer, expects output at its remaining units to fall 20% this year after owner Mikhail Khodorkovsky, was jailed. President Vladimir Putin’s government confiscated the company’s biggest unit to recover back taxes.

“It looks to us that Russian oil production is starting to go backwards,” Horsnell and Norrish said. “Even using some rather mild and conservative assumptions, we are projecting a decline in Russian output in 2006, in the order of 0.2 million barrels a day.” Russian output rose 2.9% in May to 9.33 million barrels a day, Petromarket said. Production is forecast at 9.58 million barrels a day this year, up 55% from 6.12 million barrels a day in 1998, according to the

International Energy Agency, an adviser to 26 industrialised nations.