Crude oil prices, which fluctuated wildly in 2008, will remain volatile during the new year, trading in a range of $40 to $65, according to forecasts from oil traders, economists and the International Energy Agency.

Black gold soared to a record peak of $147.27 in July, 2008, and then fell steeply to levels below $50 as the global credit squeeze and recession took hold.

Such swings are expected to be less dramatic in 2009 but experts have predicted that crude prices will remain under pressure as a weak global economy hits demand with worries for investment projects, "I think there will definitely be downward pressure on the prices (in 2009)," said Fatih Birol, the Paris-based International Energy Agency's chief economist. "The economic situation will have an impact on the demand and therefore on the prices."

Oil has lost about two-thirds of its value since climbing to record highs in July, in part because a global credit crunch has made investors pull their money out of riskier assets.

Birol, who would not predict how low prices could fall, said if there was a further drop in crude futures it would have "important implications" for oil projects, especially for those outside of the key oil producing regions such as the Middle East and Africa.

"If the prices were to slide down further, we may get difficulties to get investments in a timely manner," he stated.

Birol said investments were more at risk at the moment in areas not part of the Organisation of the Petroleum Exporting Countries - the producers' cartel. Non-Opec producers have been affected by the credit crisis, he added.

"If the trends continue, this will definitely continue and expand to key producing countries. This will definitely be a bad trend."

Birol said what happens to oil prices in late 2009 and early 2010 will very much depend on a recovery in the world economy.

"If the economy starts to recover next year, as many economists suggest, definitely it will be good news and in 2010 we may see a better economic performance worldwide and this may put upward pressure on the prices," he said.

Analysts at Deutsche Bank have pencilled in a figure of $40 a barrel for crude in 2009, while oil experts at investment bank Merrill Lynch have trimmed their oil price forecast for the same year to $50 a barrel from $90, citing weaker prospects for global economic growth and a contraction in world oil demand.

Merrill Lynch economists have lowered the growth of worldwide gross domestic product to 1.3% for 2009, while the bank's commodity analysts now see global oil demand shrinking by 400,000 barrels per day (bpd).

"Our economists have slashed their 2009 forecast to 1.3%, a scenario that is consistent with a global recession, and we are now cutting our average WTI (West Texas Intermediate) and Brent oil price forecast to $50 a barrel for 2009," Merrill Lynch said in a report to investors.

"Also, we see a contraction in global oil demand of 400,000 bpd or 0.5% next year."

The bank projected a recovery in oil price in the second half of 2009. However, Merrill predicted that oil prices will average just $43 a barrel and $45 a barrel in the first and second quarters of 2009, respectively. Oil prices have not traded as low as $43 a barrel since January 2005.

"How low prices go is rather random: $50, $40, $35? It could be any of those numbers," said Kevin Norrish, analyst at Barclays Capital in London. "All we would say is that the lower it goes, the further out of equilibrium the market is headed."

Crude prices are expected to track stock markets for much of the new year, as they did in the last quarter of 2008. A steady rise in equity prices will benefit oil. The value of the dollar is also a powerful influence on oil prices. Speculators jump into oil futures when the greenback is weak.

Demand for oil and other petroleum products in the United States - the world's biggest consumer of crude oil and petroleum products - is another key factor in determining where prices might go. Here, the news is not so good. A deep US recession will curb demand for motor vehicle fuel and other products.

"Oil prices are very much influenced by fears of recession," said Sintje Diek, an analyst with HSH Nordbank in Hamburg. "The picture is of falling oil demand. We see inventories of crude oil continuing to rise, also gasoline, as US consumers will drive less."

In a recent report, the US government reduced its forecast for oil prices in 2009 by 43% as the economic slowdown cuts energy demand.

West Texas Intermediate crude oil, the US benchmark, will average $63.50 in 2009, down from $112, the Energy Department said in its monthly Short-Term Energy Outlook, released a few weeks ago.

Average global oil consumption came in at around 85.89 million barrels a day for 2008, up 80,000 barrels from 2007, according to the report. The estimate is down 250,000 barrels from a previous forecast. Demand will average 85.93 million barrels a day in 2009, down 990,000 barrels from earlier predictions.

The International Monetary Fund reduced its 2009 oil price forecast by $32 a barrel to $68 a barrel, citing falling global demand. "Weakening global demand is depressing commodity prices," the IMF said in an update to its World Economic Outlook (WEO), which was published in early October.

"Oil prices have declined by over 50% since their peak (in July 2008), retreating to levels not seen since early 2007 - reflecting the major global downturn, the strengthening of the US dollar, and the financial crisis - despite the decision by the Organisation of the Petroleum Exporting Countries to reduce production," the Washington-based IMF said.

"In line with market developments, the IMF's baseline petroleum price projection for 2009 has been revised down relative to the October WEO, from $100 to $68 a barrel," the fund said.

Oil prices will fall to $30 a barrel in the next three months, Goldman Sachs said on Friday, as it lowered its calendar 2009 forecast for oil prices to $45 a barrel, down from a previous $80-a-barrel prediction.

Goldman Sachs' oil forecasts demand the attention of the market as the bank is Wall Street's largest oil trader. Last year the investment bank shocked many in the market when it warned about the danger of a "super-spike" to $200 a barrel.

The traditional oil bull said that with the recession expected to take on "an increasingly global character as we move into 2009", demand for oil will continue to contract next year.

"The collapse in world oil demand in the fourth quarter of 2008 as the global credit crunch intensified now threatens to push oil prices below $40 a barrel in the near term," said Goldman's commodities research team, lead by Jeffrey Currie, in a note to clients. The bank's forecast is at the low end of Wall Street's and the major industry consultants' predictions for 2009.

The investment bank said oil prices will recover to about $42 by June and to $65 by December, but the low prices of early 2009 will leave the annual average at $45.

Merrill Lynch last week cut its forecast for oil prices in 2009 to $50 a barrel, warning that prices could drop to as low as $25 a barrel.

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