Oil Price Outlook 2012: Strap In For Another Volatile Year
In our December oil price outlook, we highlighted two factors that dominated the oil market during the course of 2011. Firstly, repeated production outages in the North Sea, West Africa and elsewhere, coupled with the Libyan civil war, resulted in serious supply tightness. Secondly, demand remained resilient despite a deteriorating macro-economic environment. We expect these factors to continue driving the market during 2012, although we do expect supply tightness to ease gradually over the course of the year. As a result, barring any significant supply disruptions (such as Iran closing the Strait of Hormuz), we expect key price benchmarks to correct to the downside from their 2011 averages. BMI has therefore maintained its forecast at US$102/bbl for Brent crude and US$93.50/bbl for West Texas Intermediate (WTI).
Main Themes And Trends For Oil Prices In 2012
- Supply-side concerns will continue to provide the main upside risk to oil prices. We expect a supply deficit to ease during the course of the year, but a lack of spare production capacity is likely to make oil markets extremely sensitive to supply-side shocks.
- Saudi Arabia will continue to be the market’s supplier of last resort. Riyadh’s response to Iranian sanctions and the return of Libyan volumes will therefore be critical.
- Stricter sanctions on Iran are set to cause a reorientation in crude flows – a ‘substitution effect’ could push Brent crude higher versus other benchmarks, depending on the severity of an EU ban.
- Demand concerns will provide the main downside risk to prices. Our forecasts indicate robust global demand despite lower growth in China and the eurozone.
- A further downside risk could come from reform to Chinese oil subsidies.
The full article includes our forecasts for oil prices (Brent, Urals, WTI, Opec basket, and Dubai) out to 2016 and is available to subscribers at Business Monitor Online.
January 20th, 2012 at 2:41 am
Oil price will always remain volatile so long as the political crisis engulfing oil-producing countries would remain.