From
Jan. 2012 oil outlook: “…Barring
a major issue with Iran, which could send prices to $150 and above, prices
should ratchet up slightly to track between $85 and $120 per barrel (WTI),
averaging $105-110.” Clearly too bearish--average actual WTI 2012 was about $94, with a weekly average range of $80 to $108.
For 2013, What the ‘pros”
say:
USDOE. EIA STEO Jan. 2013: Brent and WTI crude oil spot prices to
average $105 and $89.5 per barrel, respectively, in 2013. The projected WTI
discount to Brent crude oil, which averaged $23 per barrel in November 2012,
falls to an average of $11 per barrel by the fourth quarter of 2013.
Reuters’ annual
survey of 26 analysts showed an average forecast of $108 for Brent in 2013,
down from $112 in 2012, and WTI at $94.
Four put 2013 Brent above $115 in 2013, including Goldman Sachs, who
calls for Brent at $130 and WTI $126, as capacity on the Seaway pipeline hits
400,000 b/d.
Upside Factors
Middle East
Iran. Nuclear
program--US, Europe sanctions; Iranian interference with Straits of Hormuz;
this year Iran’s program could reach the point of triggering Israeli a/o U.S.
military response.
Iraq, Syria and Egypt all placing strains on relations among ME
countries and between them and the U.S.
Pipeline sabotage plagues Yemeni production and Syrian production
unlikely to stabilize soon.
Global
demand. The IEA sees
continued sluggish demand in 2013, rising .865 mmb/d to 90.5. Demand up .85 mmb/d in 2012 (vice 1.3
projected).
Turnaround in economic growth rate could boost oil
demand in China, the world’s 2d largest consumer. India, Russia, Saudi Arabia and Brazil follow Japan in oil
consumption and will see 2013 oil demand grow 2.5 to 4.5%, the IEA forecasts,
as Japan’s demand slumps more than 3%.
The U.S. remains by far the world’s
largest oil user at >18 mmb/d. 2013 oil demand growth >0.5%, mostly on
freight shipments and industrial use.
Dollar. A declining U.S. dollar in 2013 will tend
to push up oil prices.
Both U.S. economic growth and the dollar’s value are tied
to resolution of long-term U.S. debt issues, but with opposite effects.
Downside Factors
Europe. Demand in 2012 contracted sharply, -6.0% in 3Q12. In 2013, European oil demand will
decline less rapidly, weighted to the first half. The IEA also foresees North
Sea oil output declining some 0.18 mmb/d.
MENA. Increasing production by Libya and Iraq would depress prices,
but Saudi will offset. In Africa,
a border security zone agreement between Sudan and South Sudan continues to
stall export resumption. Iran returns…? Iran could be an outlier on the downside: if the June presidential elections in Iran bring it back to the negotiating table with the EU and US, both could reduce sanctions, thus putting up to 1mmb/d of Iranian oil back on the global market.
North America. The
IEA expects a robust jump of 0.35 mmb/d in Canadian oil production, based on
increased output from oil and tar sands.
Higher production in the U.S., mostly from tight oil and shale oil
formations, will add 0.5-0.9 mmb/d, dropping U.S. liquid fuel imports to less
than 40% of consumption for the first time in more than two decades. Put simply, the US and Canada are likely to increase oil production in 2013 more than the total rise in global oil demand.
My Call
Once again, the outlier is Middle East
politics. Based on market
fundamentals, oil prices should be less volatile in 2013. WTI should trade in a narrower range of
$80 to $100 per barrel, rising throughout the year, with an average a bit above
$90. Brent ends year at about
$115.
© Robert S. Price Jr., International
Risk Strategies, Tampa, FL Jan. 2013 (Originally presented to the Longboat Key Economic Roundtable.)
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