Analysts see 2013 Brent price around $110/b, WTI price not clear
London (Platts)--31Dec2012/532 am EST/1032 GMT
While analysts are generally in consensus in forecasting Brent crude to
average around $110/b in 2013, the surge in North American production and
question marks on the timing of new infrastructure has made for a highly
divergent set of predictions for WTI.
In their most recent price forecast, analysts at Goldman Sachs said
Brent had averaged $110/b over the past 18 months.
"Brent crude oil prices have been caught in an increasingly narrow
range, where they are high enough to motivate supply, but not so high as to
undermine the global economic recovery," they said. "On net, we see Brent
crude oil prices continuing to trade in the recent range over the next year."
"However, given the relatively low level of effective OPEC spare
capacity and the ongoing tensions between Iran and the West over Iran's
nuclear program, we still see the risk to oil prices as skewed to the
upside," they added.
This view was shared by analysts at Morgan Stanley who also forecast a
2013 Brent price of $110/b.
"We continue to believe that prices will trade in a range, with upside
limited by a likely demand response and downside limited by a supply
response," Morgan Stanley said.
"Though oil prices are likely to remain muted into 1H13, we believe that
risks are skewed to the upside, with little room for error."
Among the major concerns for Morgan Stanley were geopolitical tensions
and supply outages, with prices otherwise expected to trade in ranges and
demand responses likely to limit any significant or sustained price surge.
While geopolitical tensions were generally considered the biggest threat
to higher oil prices given the muted global economic growth anticipated for
the coming year, Bank of America Merrill Lynch said any easing in tensions
would likely also result in lower prices.
"Notwithstanding a weak macro in 2013, we remain positive on energy,"
said BofAML analysts, who also forecast Brent at $110/b for next year.
"The biggest swing factor for Brent could be the return or further loss
of Iran's idled oil output."
Saxo Bank analyst Ole Hansen said he expected 2013 to play out
similarly to 2012, with dominant forces driving prices in either direction
through the year, with $111/b to be the pivot.
"Brent Crude oil has, despite times of elevated uncertainty, been
trading within a relative stable trading range during the last couple of
years, especially compared with previous years where extreme peaks and
troughs appeared," Hansen said.
"Looking ahead to 2013, we believe that this range trading will
continue, as Brent Crude is currently sandwiched between several equal
important factors, the combined sum of which should keep the price boxed in
between $90 and $125 during the next couple of years."
BEARS AND BULLS
While $110/b appeared the mean 2013 forecast for Brent, there were
outliers, with Commerzbank at $121/b and Barclays at $125/b among the more
"After two years in the current holding pattern for prices, it seems
clear that any significant shift in the dynamics of flat prices requires
either a significant change in the fundamentals of oil balances, or some
significant geopolitical upheaval," Barclays analysts said.
Barclays added that while fundamental balances, OPEC strategy, market
psychology and macroeconomic discontinuities all looked unlikely to provide a
catalyst to push crude oil prices out its current holding pattern,
geopolitical risk was another matter entirely.
"While there are other likely areas of interest for the oil market in
2013, in our view the main nexus for the transmission into oil prices is
likely to be the Middle East, with the spiraling situations in Syria and Iraq
layered in on top of the core issue of Iran's external relations," Barclays
But analysts at Commerzbank said the current market state may have been
"We believe that the market is too optimistic for the supply prospects
and too pessimistic for the demand prospects," Commerzbank said.
"The market is thus likely to tighten over the course of the year... In
the coming year, the current equilibrium of influencing factors should be
resolved in the favor of the price-supporting factors. It is questionable
whether supply will be surprisingly positive again next year."
Among the price supporting factors defined by Commerzbank were supply
risks from Iran, the Middle East and the North Sea, as well as the
ultra-loose monetary policies of central banks.
Analysts with VTB Capital, however, argue that price-depressing factors
are more likely to dominate oil markets next year, setting their price
forecast for Brent at a bearish $95/b.
"We believe that visible inventory levels confirm our view that the
market is in oversupply as they have rebuilt sharply since the start of the
year, albeit somewhat patchily by region and by oil type," VTB Capital said.
"OECD crude inventory has risen from the bottom of the five-year range
at the start of the year towards the top of it in October... unless the
significant oversupply to the market is cut, then the oil price is likely to
give way at some point, and more likely sooner than later in our view."
VTB also said some of the premium currently in the market this year
related to the threat of an Israeli attack on Iran would also drop off
further into the New Year.
Despite the relative consensus on the factors affecting Brent in 2013,
if not necessarily the direction these will lead prices, for WTI uncertainty
over changes currently taking place in the North American oil sector meant a
spread of forecasts ranging from $81.40/b to $115.00/b and a Brent premium
from anywhere between $7.50/b and $20/b.
"For WTI, surging shale oil output combined with infrastructure and
export constraints could isolate North American crude markets," BofAML said.
"Of particular concern is that oil output growth in the US is now
exceeding previous growth rates experienced in dry natural gas. Thus, the
saturation point for the US crude oil market could come faster than the
market expects despite the large gap in imports."
Indeed, such has been the growth in North American production, climbing
to 19-year highs this year, that even when new transport capacity comes
on-stream in 2013 it may not be enough to meet the increased supplies.
"While the Brent crude oil market has continued to tighten, WTI prices
have traded at an increasing discount to Brent as the barrels at Cushing
await the development of excess capacity to transport them to the US Gulf
Coast," Goldman Sachs said.
"We continue to expect that this spare capacity will be created when the
Seaway pipeline ramps up from its current capacity of 150,000 b/d to its
full capacity of 400,000 b/d in early 2013."
This, Goldman said, has not been helped by delays to BP's Whiting
"Assuming the Whiting crude unit is delayed by three months, this would
leave around eight million barrels of crude stocks in Cushing that would
otherwise have been consumed by the Whiting refinery, all else equal,"
"The expansion of Seaway in January, and the addition of around
400,000 b/d of new pipeline capacity from the Permian Basin that will
divert crude flows away from Cushing, will, we believe, still shift the
Cushing balance into a substantial deficit in 2Q13, albeit at a slower pace."
Goldman Morg Stan Barclays BofAML Commerzbank Saxo VTB
WTI $102.50 $96.50 $115.00 $90.00 $108.00 N/A $81.40
Brent $110.00 110.00 $125.00 $110.00 $121.00 $111.00 $95.00
--Geoff King, firstname.lastname@example.org
--Edited by Jeremy Lovell, email@example.com
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