Oil could fall to $40/bbl in 2009: Deutsche Bank

NEW YORK (Reuters) - Oil prices could fall to as low as $40 a barrel next year as more efficient refining capacity comes online and production costs for some regions fall, Deutsche Bank said in a Wednesday research note.

"The most underappreciated issue is the combination of
a) poor demand with
b) major new refining capacity additions and the extent to which that will undermine light sweet crude prices," the bank said in the note outlining the downside risk to its 2009 oil forecast.

"We believe that cash production cost 'floors' for the oil price are shrinking target (lower costs, stronger U.S. dollar), which imply a 'V' shaped downside to $40 a barrel crude around April 2009."

Oil prices have tumbled from a record over $147 a barrel to below $54 a barrel on Wednesday as demand from large consumer nations across the globe wilts due to the economic crisis.

The bank said the new refining capacity additions will use 20 percent less crude to make gasoline and distillate than older capacity, cutting the need for crude and pressuring prices.

In addition, the research note said healthy supply increases from non-OPEC sources should also weigh on oil.

"Given the weak demand we see versus relatively healthy supply levels, we seek the cash break-even cost of marginal production as the floor for oil prices," Deutsche Bank analyst Paul Sankey wrote, adding this floor was a "shrinking target".

"As oil falls, costs fall, the U.S. dollar strengthens, further causing local (Canadian, Russian) break-evens to fall."

OPEC members, feeling the squeeze of falling oil prices, will also face increased pressure not to cut production due to shrinking revenues, the bank said.

(Editing by Christian Wiessner)