Dubai (Platts)--20Apr2009

Oil inventories are expected to start declining in the second half of
2009 if policies adopted by the world's major powers stop the global economy
from shrinking and if OPEC maintains a high level of compliance with its
production cuts, BP Chief Economist Christof Ruhl said Monday.

Ruhl told Platts in an interview that decisions adopted by the G20
meeting of the world's industrialized nations and the production cuts by OPEC
-- totaling 4.2 million b/d -- were supportive of oil markets in the short
term, though the market was in for a sluggish period of economic growth in the
medium term.

OPEC's swift action after demand "fell off a cliff" in September last
year due to the spread of the global financial crisis helped to stabilize the
market, he said. Saudi Arabia and OPEC reacted to the demand fall by cutting
production, announcing their biggest supply cuts to date.

"Compliance so far is good, so what we see is that in the first quarter
of this year... the cut was larger than the decline in demand... that is the
first factor that contributed to stabilization of prices," said Ruhl.

"We have since [the G20 meeting] seen a lot of money being thrown at the
problem and the expectation is that some of this money will stick, some
of the biggest instabilities have been curtailed, and at least the global
contraction will stop in the second half of 2009," he said.

"If the economy stops shrinking in the second half and if OPEC maintains
current rates of compliance, which are high, and which seems possible, we
would expect inventories to decline in the second half of 2009 and that should
put some stabilization under prices," Ruhl said.

"Of course, the big issue is whether this is a flash in the pan or will
we see in 2010-2011 a return to both the stellar growth rates in the [global]
economy and global oil demand, which will allow prices to go back up to where
they came from...," he added.

However, the global economy was not likely to return to high growth very
fast given deficit spending and proposed budget deficits, particularly in the
US, which will mean "higher tax rates, higher inflation and/or higher interest
rates down the road."

"Most likely we are in for a sluggish period of economic growth in the
medium term," Ruhl said.
--Kate Dourian, kate_dourian@platts.com