Published — Friday 14 December 2012
Last update 13 December 2012 10:28 pm
LONDON: Commerzbank said oil prices are set to climb in 2013, initially driven by risks to supply and then by improving demand.
“We believe that the market is too optimistic for the supply prospects and too pessimistic for the demand prospects,” the bank said in a note to clients.
“The market is thus likely to tighten over the course of the year.”
Commerzbank kept its 2013 average Brent price forecast at $ 121 per barrel, and forecast a 2014 average of $ 120.
It reduced its 2013 WTI average price forecast to $ 108 per barrel from $ 113, and sees a 2014 average of $115.
The bank said new pipeline capacities should narrow the discount of WTI against Brent. It sees Brent at $ 125 per barrel and WTI at $ 115 by the end of 2013.
With the rise of Seaway pipeline’s throughput capacity to 400,000 barrels per day by early 2013, much more crude oil can flow from the US Midwest to the Gulf Coast, thereby na rrowing the Brent and WTI spread to $ 10 by the end of 2013 despite a further increase in US oil production, Commerzbank said.
The ultra-loose monetary policies being pursued by leading central banks should lead to stronger investment in t he crude oil sector, the bank said.
“In view of negative real interest rates, investment alternatives are currently lacking, and against the backdrop of growing risk appetite, this should lead to rising demand for crude oil investments.”
The backwardation structure of the Brent forward curve — high near-term prices relative to long-term prices — makes investments in Brent attractive, Commerzbank said.
It said the ” lower price level and associated catch-up potential argue in favor of investments in WTI.”
Crude oil slipped to around $ 109 a barrel yesterday due to rising US oil stockpiles, while fears that the world’s largest economy might miss a deadline for next year’s budget and risk a recession also kept bulls in check.
Benchmark Brent crude fell 35 cents to $ 109.15 a barrel by 1413 GMT, while US crude was at $ 86.54, down 23 cents. The January Brent contract expires today.
Deadlocked talks to avert a “fiscal cliff” of steep tax increases and budget cuts in the US returned to investors’ focus after the announcements by the US Federal Reserve of more monetary stimulus buoyed global markets on Wednesday.
Failure to reach a compromise on the US budget by the end of the year risks pushing the world’s biggest oil consumer into recession and this has stoked fears a fragile recovery trend emerging in China and some other countries would be stifled.
Sharp differences on the 2013 budget persisted between Congressional Republicans and the White House on Wednesday, when negotiators warned the showdown could drag on past Christmas.
“People are worried about the economy, the fiscal cliff in the US and the European economy still remains a tricky one,” said Richard Langkemper, analyst at Argos North Sea Group in Rotterdam.
US crude inventories rose last week, against expectations of a fall, while gasoline and distillates stockpiles jumped more than expected. The fuel stocks rose despite a pull-back in refinery output and steady import levels.
“I am generally bearish on crude oil, because there is too much supply, particularly in North America,” said Fawad Razaqzada, technical analyst at GFT in London.
Demand will be sluggish through 2013 as economic expansion stays tepid and crude supply levels comfortable, which could ease price pressure on consumers, the International Energy Agency (IEA) said this week.
Global oil demand would grow 865,000 barrels per day in 2013 to hit 90.5 million bpd, the IEA said.
In Vienna, OPEC agreed this week to retain the producer group’s 30-million barrels-a-day output target and is relaxed about the prospect of rising inventories in the first half of next year.
“It became clear once again that the cartel is relatively unwilling to act, especially when prices are high,” Commerzbank commodity analysts said in a note.
The target is higher than is required from OPEC to meet demand next year, some market observers say, but the excess supply has cushioned the impact on prices from a sharp drop in Iranian oil exports due to sanctions this year.
Big powers hope soon to agree with Iran to hold a new round of nuclear talks in another bid to resolve a protracted dispute over Tehran’s atomic program.
Inspectors from the UN nuclear watchdog arrived in Tehran in the first such meeting since August to ease international concerns over the program.