Threadneedle comments on Oil Prices

Oil prices have proved resilient against the credit crunch, hedge funds unwinding and fears of an economic slowdown, observes Steve Thornber, Global Equity Manager at Threadneedle.

"Oil prices have been surprisingly strong. Having come through the winter with stronger prices, I see prices remaining high.

"Seasonally the fourth quarter is the weak quarter for oil as summer demand passes and before heating oil picks up. Also, in light of the credit crunch and hedge fund unwinding, one would expect futures positions to be sold off again, thus causing oil price weakness. However, none of these factors have impacted upon oil prices. Rather, oil prices have strengthened.

"We continue to see production downgrades, particularly from Russia and Mexico. The company reporting season has indicated little or no volume growth from the majors: Mexico, for example, reported disappointing volumes for last year. As we enter into the refinery maintenance season, the switch to summer and grade gasoline in the US will mean oil prices will move higher.

"In the absence of a significant economic slowdown and given ongoing demand from emerging markets, we believe oil prices look set to remain over $100 and could spike higher on any fears of disruption to supply."