Oil price forecast an average $110 in 2013
BY Staff and Wire reports
Friday, December 28, 2012
12/28/12 at 8:14 AM
Oil will average $110 next year, according to the median of 30 forecasts compiled by Bloomberg News, compared with about $111.68 a barrel so far in 2012.
Meanwhile, expanded capacity in Cushing should give the U.S. access to more oil produced in North America.
The Organization of Petroleum Exporting Countries decided Dec. 12 to leave its official production target unchanged. The group is expected to earn more than $1 trillion in export revenue this year, according to the U.S. Energy Department.
Next year's growth in demand will be met by new supply from outside OPEC, according to Citigroup Inc.
"Risks are overwhelmingly to the downside," said Ed Morse, Citigroup's global head of commodities research in New York, who estimates that current prices are high enough to act as a break on economic expansion.
About 60 percent of the 900,000-barrel-a-day increase in non-OPEC supply in 2013 will come from North America, Citigroup estimates, as hydraulic fracturing, or fracking, allows the extraction of shale oil from rock formations in Oklahoma, Texas and North Dakota.
The boom in U.S. production has triggered an 8.1 percent drop this year in West Texas Intermediate crude, the nation's benchmark grade. WTI has averaged $17.47 a barrel less this year than Brent crude, the North Sea-sourced benchmark for Atlantic basin oils. That's a record discount in annual terms, as new output floods into tanks at the U.S. storage hub in Cushing. The price difference was $19.93 Thursday.
Goldman Sachs Group Inc. said Dec. 20 the spread between the two grades will narrow to $14 within three months, abandoning a prediction it would end the year at $4. The median of analyst forecasts compiled by Bloomberg are for the gap to narrow to $14.10, as flows accelerate through the Seaway pipeline, which connects Cushing with the Gulf Coast, the location of 50 percent of the nation's refining capacity.
Seaway's owners, Enterprise and Enbridge, reversed the flow direction of the pipeline this year, allowing it to transport crude oil from the bottlenecked Cushing hub to the vast refinery complex near Houston.
In reversed service the line has a capacity of 150,000 barrels per day. Following pump station additions and modifications, anticipated to be completed by early 2013, the capacity of the reversed Seaway Pipeline will increase to about 400,000 BPD of crude oil.
Analysts said Brent crude is poised to trade above $100 a barrel for a third consecutive year in 2013 as tension in the Middle East threatens to disrupt supply and global demand is buoyed by Chinese imports.
Brent is more likely to overshoot the 2013 median than miss it as Iran spars with the west over its nuclear program and the conflict in Syria deepens, Morgan Stanley and UBS AG said.
"Risks are skewed to the upside, related to still-high risks of escalation or confrontation over Iran and deterioration in Syria," said Julius Walker, global energy markets strategist at UBS Securities LLC in New York, who predicts Brent will average $110 next year. "The biggest possible surprise for markets could be stronger-than-expected oil-demand growth."
Rising prices may pose a barrier to a recovery in the global economy amid Europe's sovereign debt crisis, U.S. budget disputes and signs of slowing growth in Asia. Record revenue for oil producers helped ensure supply stability this year, while financing shale projects in the U.S. that fostered the nation's biggest production increase in 50 years.
Iran's oil exports have collapsed 50 percent from year-ago levels because of tightened restrictions on sales imposed by the U.S. and Europe this summer, the International Energy Agency said.
Daily exports will probably slide to about 1 million barrels early next year, compared with 2.5 million at the start of this year, the Paris-based adviser to consuming nations said in a Dec. 12 monthly report. Barclays Plc predicts that 2013 will be the year when western governments decide whether to accommodate or confront the Islamic republic.
The U.S. will probably seek to bring Iran back to international talks in the first quarter of 2013, Michael Wittner, the New York-based head of commodities research at Societe Generale SA, said in a Dec. 21 note.
Global oil demand will expand by 1 percent next year to 90.5 million barrels a day, versus growth of 0.9 percent in 2012, the IEA predicted in its report. China will account for about 30 percent of the expansion.
Original Print Headline: Average oil price of $110 is forecast
The Tulsa World Business staff contributed to this story by Bloomberg News.