Just when investors thought it was safe to stop worrying about oil prices, Merrill Lynch has come up with research which warns the stock market bogey may be around to stay - for years. The focus of global markets has switched from oil jitters to United States corporate earnings worries following President Bill Clinton's decision to draw on the strategic petroleum reserves. This month's rise in production quotas by the Organisation of Petroleum Exporting Countries and Saudi Arabian promises to use spare capacity have also helped put oil on the back-burner after it touched a post-Gulf War high of US$37.80 a barrel last month. Even factoring all that in, Merrill has lifted its forecast for oil prices in a report subtitled 'That 'Don't worry be happy' refrain runs headlong into the reality of a multi-year tightening in oil market fundamentals'. The brokerage is now expecting a barrel of crude to fetch $29.25 on average this year, up from $28. For next year, Merrill is predicting $25 a barrel, compared with its previous forecast of $23. While that is lower than this year, it is still well above the 10-year historical average of $19.73 a barrel, worrying for economies and stocks - except oil counters. 'One of the more amazing facets of today's environment is the complacency towards high oil prices,' the report said. 'Despite numerous signs to the contrary, equity markets are valuing major oil shares as if oil will return to $18 to $19 per barrel.' Behind Merrill's revised outlook are four key points: the evaporation of spare capacity in most producing countries, the perception that key Opec nations are keen on high prices, rising demand, and the three to four-year lead time for new capacity to come on stream. 'It is important to note that our base case forecast does not incorporate any supply or demand dislocations, such as the impact of a colder than normal winter or a prolonged hiatus of Iraqi oil exports,' the report said. If Iraqi President Saddam Hussein were to pull the plug on Iraq's two million to 2.4 million barrels per day of exports, that would send prices shooting past the $41.15 per barrel high reached during the Gulf War, Merrill said. 'After the 19-year 'bust cycle' from 1980 to 1999, the energy sector has completed only the first year in a four to five-year up-cycle,' Merrill said. Brent crude for November delivery edged down in London yesterday, falling below $31 in a corrective move after Monday's rally. It was off 22 cents at $30.86 a barrel in late trade, after touching a low of $30.70.