Oil expected to bounce back from 2009 lows, reaching $100 a barrel

Last week saw dramatic developments in the oil sector as BP tried to contain a huge oil slick, but fund managers are forecasting gradual upward moves in the oil price in the longer term.

The Deepwater Horizon rig began leaking crude oil after an explosion two weeks ago, with a reported 5,000 gallons of oil spilling out into the Gulf of Mexico since the accident By the end of last week it had reached the US shoreline. American authorities declared a state of emergency and have banned any new oil drilling along the US coast as they try to contain the leak.

BP, the owner of the rig, faces costs in excess of £60m, according to some reports. However, this is unlikely to make much of a dent in profits. Last month the oil giant reported record first quarter profits of almost $6bn (£4bn), up 135% quarter-on-quarter, and other oil majors have also seen their profits beat expectations as the oil price creeps up.

Capital Economics has recently raised its 2010-2011 oil price forecast from $50 per barrel to $60. “These numbers are still at the low end of market expectations, and well below current levels of around $80 per barrel,” says Julian Jessop, the chief international economist.

Robin Batchelor, co-head of BlackRock’s Natural Resources Equity team and manager of BlackRock’s BGF World Energy fund, says he expects the oil price to climb back to over $100 a barrel. “Further upward moves in the oil price should be more gradual given the market has plenty of inventory available as well as adequate spare capacity within Opec,” he says. “However, as demand continues to rise, both these restraining factors will be reduced, allowing oil prices to once again pass through $100.”

Demand is now recovering after a depressed 2009, Batcherlor says. Improvement in the global economy and demand from emerging markets has boosted the sector.