Merrill Lynch analysts are taking a less optimistic view on the direction of oil prices than many of their rivals, predicting that prices will remain high for some time and will not begin to fall in the short term.

Merrill says it expects the oil market to remain tight in the next two years, with Brent crude expected to average about $23.50 (€27.73) a barrel. This prediction goes against the broad consensus in the market, which forecasts a reduction in the oil price to between $17 and $18 a barrel.

Although the Organisation of Petroleum Exporting Countries (OPEC) recently agreed to increase crude production to ease a shortage in global oil supplies, Merrill says this will not lead to a significant relaxation in the oil market.

It believes prices will remain high because, even if world economic growth remains moderate over the next two years, global oil demand is likely to outstrip oil output of non-OPEC producers. Perhaps more importantly, OPEC itself will be pushed closer to capacity.