SINGAPORE (Reuters) - Oil is likely to retreat towards $100 a barrel in two months as speculative activity slows, but buoyant appetite from the Middle East, India and China will prevent a fall much below that level, a leading industry analyst said on Friday.
Even the recent subsidy cuts by Asian governments will fail to have a dampening effect on the region's insatiable appetite for oil, said Fereidun Fesharaki, chairman of Facts Global Energy.
But a sharp correction in the price -- oil hit a record $135.09 on May 22 -- is possible as the push beyond $100 to current levels was the result of excessive speculation.
"In the past two months nothing very dramatic has happened to warrant an increase in the oil price to $135. This is pretty much 100 percent speculation," he told the Reuters Global Energy Summit from Singapore.
"It is very likely and possible that we will go back again to the $100 range as speculators take profits and go out of the market. It could happen by end-August or latest by September."
Oil prices have surged six-fold since 2002 as surging demand and a weakening dollar have attracted billions of dollars in cash from short-term speculators to longer-term investors such as pension funds.
On Friday, U.S. light crude for July delivery CLc1 was trading about $1.81 a barrel higher at $129.60 by 0920 GMT. Prices have gained 35 percent so far this year.
In addition to a recent slowdown in speculative activity in the overheated market, the first signs of slowing demand in the United States, the world's largest consumer, is emerging, which could lift inventories in coming months, Fesharaki said.
"The slowdown in demand in the United States is happening after a long, long time -- a loss of some 200,000 barrels a day. And U.S. refinery margins are very weak at the moment. That's why I expect a pretty strong inventory build up," he added.
U.S. retail gasoline demand so far this year is down 1.8 percent from the same time last year as higher gasoline prices continue to slow demand, MasterCard Advisors said this week. The four-week moving average for gasoline demand was negative for the 16th week in a row, dropping 6 percent from last year's level.
PRICE CRASH UNLIKELY
India raised retail fuel prices by 10 percent this week. Indonesia raised it by 29 percent last month and Malaysia has decided to hike gasoline prices by 41 percent and diesel prices by a sharper 63 percent.
Fesharaki added it was unlikely that oil would fall much lower than $100 as Asia's appetite for the energy source shows no signs of slowing despite the subsidy cuts. And China, Asia's' largest oil consumer, would defer any price rise until after the Olympics, keeping a large part of Asian demand intact.
"To make an impact on demand in India, you need a 30 percent or 40 percent rise in prices of fuel," Fesharaki said. "China and India are pretty much price proof. And between the three main ones -- China, India and the Persian Gulf -- we expect a three million barrels a day demand growth annually."
In addition to strong demand from India and China, where demand has grown by a third since 2003, Fesharaki added that OPEC nations would aim to support prices around $100. Continued...
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