LONDON, Feb 17, (RTRS): Brent oil prices are forecast to drop later this year as analysts expect the risk premium for unrest in the Middle East to ebb, a Reuters poll showed. A correction could narrow the record price gap between Brent and the much weaker US light crude. The focus later in the year is seen switching to fundamentals including strong demand growth, supported by China, and the reaction of the Organisation of Petroleum Exporting Countries to that growth. Brent prices rose to a 28-month high of $104 a barrel this month on worries that unrest will spread from Egypt and Tunisia to major Gulf oil-producing nations, which account for 40 percent of global production. Analysts and banks polled by Reuters see Brent prices averaging $93.87 a barrel in the first quarter and $92 the January poll. “Unrest in Egypt has added some 5 percent risk premium to oil prices,” Nomura analyst Michael Lo said. “We believe the risk premium could dissipate on any signs of the protests cooling off.” Credit Agricole CIB’s analyst, Christophe Barret, said the risk of possible contagion in the region increased after Egypt’s former president Hosni Mubarak stepped down, which is lending short-term support to prices above $100 a barrel. “Thereafter, prices are expected to severely correct downward as current prices are too high for fundamentals,” Barret said. US light crude or WTI has been little affected by unrest in North Africa and the Middle East and has instead been driven mainly by a glut in US inland crude in the landlocked delivery hub of Cushing, Oklahoma.. That helped widen the premium for Brent over US crude to as high as $16 a barrel after years of being priced at a discount. The poll showed a cut in US oil price estimates to $89.96 a barrel for 2011 from $90.40 in the previous poll. “An increase in Brent price forecasts in 2011 and a simultaneous decrease in the WTI figure is likely under consideration by most analysts,” Deutsche Bank’s chief energy economist Adam Sieminski said. Although the price of both benchmarks have historically moved broadly in tandem, analysts said the recent price divorce has made forecasting more challenging. “The exceptional volatility in the spread between Brent and WTI is making it difficult for price forecasters to be right on both crude oil benchmarks,” Olivier Jakob from independent research group Petromatrix said. Analysts are currently forecasting the spread between Brent and WTI to average $2.57 in the second quarter, compared with January’s forecast of $1.08. “The very unusual spread between WTI and Brent may persist for some time, until the pipeline transportation network into and out of Cushing can be modified,” Sieminski said. The reversal of the typical pricing relationship between the benchmarks as each becomes increasingly more affected by local fundamentals has triggered a debate about their future. Looking ahead, expectations of demand growth driven by China will lend underlying support to prices. Commerzbank analysts expect prices to edge closer to $85 a barrel in the second half of the year. “We still think that the $100 mark is unlikely to be overcome on a lasting basis because of still high spare capacities in OPEC countries and high industrial stocks in the OECD countries,” the analysts wrote in a note. Frank Schallenberger from German bank LBBW also noted the rise in OPEC production and strong inventory levels in the United States could act as a cap on prices over $100.

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