Oversupply to depress oil prices next year

Updated 01 December 2012
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Oversupply to depress oil prices next year

LONDON: Oil prices are expected to fall slightly over the next year as high production feeds softening demand at a time of slowing global economic growth, a Reuters poll shows.
Reuters’ monthly oil price survey of 29 analysts forecasts North Sea Brent crude oil will average $ 107.50 per barrel in 2013, down $ 1.30 from the forecast in the October poll and compared with an average of around $ 111.90 so far in 2012.
Five analysts now expect Brent to average less than $ 100 in 2013, compared with three in last month’s poll.
Only three analysts forecast Brent will average more than $115 next year, compared with five analysts last month.
“We are notably bearish on the near term oil price environment given that we see a fundamental oversupply of oil,” said Raymond James analyst Praveen Narra, who has the lowest 2013 Brent price forecast of $ 80 per barrel in the poll.
Gain Capital Group analyst Chris Tevere is also bearish. “Our overriding outlook continues to foresee slowing global growth (which) consequently should persist in undermining (oil)demand,” Tevere said.
The Organization for Economic Cooperation and Development has cut its outlook for global growth, reducing its forecast for 2013 to 3.4 percent from 4.2 percent, saying the euro zone debt crisis was a serious threat to the world economy.
Expectations of slowing growth have led many analysts to trim their oil price projections, although most institutions are less bearish than Narra at Raymond James.
“Our analysis of supply and demand in 2013 suggests the oil market will be in comfortable surplus next year (barring an unforeseen disruption to supply) and thus we expect prices to fall back,” said Caroline Bain at the Economist Intelligence Unit.
Many analysts argue loose monetary policies being followed by leading central banks should keep a floor on oil prices, and geopolitical tensions may lead to price spikes, but most say upside risks have diminished.
“While geopolitical concerns in the Middle East have increased of late, namely in the Gaza strip, since this is not an export heavy region, it is unlikely to lead to supply disruptions,” Gain Capital’s Tevere said.
“Tensions between Turkey and Syria still persist, and this could potentially effect the supply of oil should this escalate to other nations within the Middle East. While we ultimately believe cooler heads will prevail, these elevated risks could see crude spike at times,” he added.
Harry Tchilinguirian, head of commodity market strategy at BNP Paribas, said the prospect for further quantitative easing in the US with a resulting weakening of the US dollar and a seasonal upturn in demand could support oil prices this northern hemisphere winter.
Barclays had the highest Brent price forecast in the poll with $ 125 per barrel for 2013.
Analysts also saw a narrowing of the Brent/WTI spread due to easing geopolitical tensions in the course of next year. The poll projected a spread of $ 12.8 for next year.
“New pipeline capacities in the US should help to reduce oversupply in the US Midwest and to narrow the price gap between Brent and WTI next year,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.


Saudi issues new Islamic sukuk to finance budget

Updated 24 April 2018
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Saudi issues new Islamic sukuk to finance budget

RIYADH: Saudi Arabia said Tuesday it has completed the issuance of a new Islamic sukuk sale to help finance its budget deficit as the Kingdom accelerates borrowing despite rising oil prices.
The finance ministry’s debt management office said it raised $1.3 billion from the sale of sukuks in three tranches maturing in five, seven and 10 years.
This was the second sukuk sale this year following a $4.8-billion issue it completed last month.
Last week, the Kingdom also raised $11 billion in the sale of conventional bonds. In early March, it struck a deal to refinance a $10-billion loan and added another $6 billion to it.
The OPEC exporter has posted huge budget deficits since oil prices crashed about four years ago and resorted to the debt market to finance the shortfall.
It posted budget deficits totalling $260 billion since 2014 and is projecting a shortfall of $52 billion for this year, according to official figures.
The government debt level, both domestic and international, rose from 1.6 percent of gross domestic product in 2014 to 17.3 of GDP last year reaching $118 billion.
During the same period, the government has drawn down some $245 billion from its fiscal reserves.
Oil income made up more than 90 percent of public revenues before oil began to slide.