Sydney: Crude oil prices may fall as low as $50 (Rs2,350 at current exchange rate) a barrel next year, about half the current levels, in the “unlikely" event of a global recession, weighing on shares of petroleum producers, Merrill Lynch and Co. said.

Such a scenario, where global growth in gross domestic product falls to 1.5%, isn’t the base-case forecast, the bank said on Thursday in a report. Merrill cut its 2009 average price estimate for West Texas Intermediate, the US benchmark oil grade, by 16% to $90, citing falling demand and the start of new fields in the Organization of the Petroleum Exporting Countries, or Opec.

Crude oil future prices have fallen almost a third in New York since reaching a record $147.27 a barrel on 11 July, driven by concerns that a worsening financial crisis in the US is crimping energy demand. US oil use is declining faster than expected, while European consumption is falling “rapidly", and Opec production capacity is “just about to soar", Merrill said.

“Combined, these factors represent significant short-term headwinds for both upstream and downstream companies alike," Merrill analysts Mark Hume and Alexis Clark said in the report.

“Notionally it is conceivable that in a worst-case scenario global oil demand actually contracts in the near term as it did back in the 1980s post the Iranian Revolution."

Oil demand growth in China and India, the world’s fastest expanding major economies, may slow down in 2009, Merrill said. China’s crude oil demand may rise by about 270,000 barrels a day, or about 3.4%, while India may consume 40,000 barrels, or 1.4%, more crude a day in 2009, it said.

India’s crude oil use last year rose by 6.7% to 2.74 million barrels a day and consumption in China climbed 4.1% to 7.85 million, according to BP Plc.’s Statistical Review of World Energy 2008.

“Against our initial expectations, some of the emerging markets are not keeping up either," the Merrill analysts said.

A decline in prices to $50 would impede investment decisions on projects, said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo.

“You’re already seeing some delays because of the credit issues now," Nunan said. “Longer term, this is bullish because it adds to the already chronic supply problem."

Crude oil for November delivery on Thursday gained 1.9% to $100.37 a barrel in New York as the US Senate passed a $700 billion financial-rescue package aimed at limiting the slowdown of economic growth in the world’s biggest energy-consuming nation.

Meanwhile, a “string" of fields in Saudi Arabia, Qatar and elsewhere within Opec is set to increase capacity within the exporting group by about 3 million barrels a day in the next 18 months, the analysts said. In addition, refinery expansions and new projects will add about 900,000 barrels a day of distillate and 700,000 barrels a day of petrol production capacity, they estimate.

The long-term cycle for oil prices “remains intact" because of under-investment in the industry, the Merrill analysts said.

Christian Schmollinger and Dinakar Sethuraman contributed to this story.