Indian oil industry expects global crude oil prices, which during past few weeks is

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sitting at significant resistance level of $75-80 per barrel range, to be volatile in 2010 with the possibility of an upward spike.

“There is volatility in the market and looking at the fundamentals, crude oil prices will go up in 2010,” said R S Sharma, chairman and managing director of country's largest upstream company, Oil and Natural Gas Corporation Limited (ONGC). But predicting an exact month or quarter when the prices will shoot up is not possible, Sharma said.

“Crude oil prices are now range bound between $75 and 80 per barrel. But during the New Year, because of positive sentiments, crude oil prices may touch $85 per barrel. Though, for the first six months of 2010, crude prices should be range bound around $80-85 per barrel. In the second half of 2010 it may get more support and touch $90 per barrel,” said Serangulam V Narasimhan, director (finance) at country’s largest oil marketing company, Indian Oil Corporation (IOC).

The government too is concerned if global prices show an upward movement but it has no immediate plans to raise fuel prices in the domestic market. “There is no such proposal yet," petroleum secretary R S Pandey said. He denied to comment on future crude price movement in 2010.

Looking at the overall industry scenario, every dollar rise per barrel impacts the under recoveries in India by nearly Rs 3,000 crore per annum. And in terms of borrowings, every dollar rise cost Rs 300-400 crore for the country.

According to International Energy Agency (IEA)’s forecast there is a possibility for oil demand to increase by about 1.5 million barrels per day in 2010, which is a 1.7 per cent increase from the total world consumption of nearly 85 million barrels per day in 2009. However, Organisation of the Petroleum Exporting Countries (OPEC)’s estimates indicate that the forecasted increase in oil demand in 2010 will be 0.82 million barrels per day, an increase of one per cent.

The movement of crude prices in 2010 depends on the growing demands in the United States, the largest consumer of crude in the world.

According to estimates from Energy Information Administration (EIA), section of the US department of energy providing statistics, data, analysis on resources, supply, production, consumption for all energy sources, US’s total crude consumption by 2009-end is expected to be 18.72 million barrels per day and is likely go up by 1.37 per cent to 18.98 million barrels per day in 2010. This may lead to an upward movement in crude prices anywhere between $85 – 90 per barrel in 2010.

Jayant Manglik, head of Commodities at Religare said that crude oil prices would go up in New Year because the US is stabilising gradually and there is a positive future outlook that will impact all other markets. “It will be a concern once it crosses $90 per barrel,” Manglik added.

During past few weeks, crude is sitting at significant resistance level of $75-80 per barrel range. After hitting all time high of $147 per barrel in July 2008, in the current year crude saw the peak on October 21 at $81.98 per barrel and lowest on February 18 at $47.43 per barrel. At present, NYMEX Crude January futures are trading around $79 - $80 levels.

According to Bloomberg data, the US’ total crude oil consumption in 2008 was 19.4 million barrels per day, which are 6.4 per cent less compared with 20.68 million barrels per day in 2007. In 2008, the US consumed 22.5 per cent of the total world crude consumption of 84.45 million barrels per day. India consumed 28.82 million barrels per day in 2008, a 4.8 per cent rise from a total crude consumption of 27.48 million barrels per day in 2007. India shared 3.4 per cent of the total global crude consumption in 2008, while China and Japan's share in total crude consumption are 10 per cent and 6 per cent, respectively. Russia consumes 3.2 per cent, while Germany uses 2.8 per cent of the total crude consumption globally.

Amar Singh, head of commodities research at Angel Broking, said that there are several indicators that support crude prices. “There will be a pick up in demand in 2010 after the global slowdown in 2008 till 2009. And Iran is continuing their nuclear interests, which may attract some sanctions in 2010. All these factors indicates that crude is likely to go high,” added Singh. In addition, commodity funds have enough investment appetite and they are ready to take risk, which is a positive sentiment to support crude prices, added Singh. Moreover, dollar denominated commodities prices rally when the US dollar weakens and vice versa. Dollar is in a overall secular bear market so even if there is short-term strength in the US Dollar, from a long-term perspective it is expected to weaken.