© Abhishek Deshpande
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At the moment, demand is in fact weak, but it is still rising. Thus, in 2013 we see tepid growth in global oil demand. There are two factors here: on the one hand, we are seeing declining demand from Europe (almost by 0.5mn b/d yoy in 2012), which is more due to the effect of fiscal austerity, and on the other hand we have reduction in demand emanating from the U.S. due to structural changes that are taking place in the U.S. automobile, trucking and power industries as the country presses on towards energy independence. However, at the same time we have a growing demand coming from Asia, particularly China and the Middle-East, which more than offsets the decline. To sum up, we do see increasing global oil demand in the future, but the growth will probably be limited throughout this year and possibly next. Moreover, as we are come out of the global recession in future, we should see the rate increasing and going up again.
What factors do you expect will influence oil market this year? What trend in oil prices do you anticipate to see this year?
Our target for Brent is $106.5 in 2013 and we expect oil prices to slide down from 2012 levels slightly. This is due to the fact that there is an oversupply of oil in the market. Together with slow growth in global oil demand will help keep a cap on oil prices this year. On the supply side we have got excessive supply coming from the U.S. with almost more than half a million barrels per day to be added in 2013, most of it will be attributed to the Bakken Shale boom. We also have increases coming from countries such countries as Iraq, although that could be a bit limited, depending on the political situation in the country. Nevertheless, we do see a rise in oil coming from the Middle-East region, particularly, Iraq. Additionally we expect Sudanese oil returning back from the second quarter onwards. Thus, there is quite a bit of supply in the oil market, much more than 1.1 million barrels per day. Consequently, we expect supply to boost as opposed to only 0.8 million barrels a day increase in demand. That would keep oil prices under pressure in terms of bringing them down slightly in 2013. We see oil prices rising once again next year on improved demand.
What oil prices do you anticipate by the end of January and by the end of quarter?
Being currently at $110.11, I would not expect prices to be considerably lower because the changes that had to take place have already been implemented with the release of Seaway pipeline. Thus, I would expect the prices to remain in the range of $110 and $112 by the end of this month. The WTI/Brent spread has already started to narrow down. This January we had expected the spread to contract to $17 because of the Seaway pipeline restart, which was closed since 2 January, to complete a major expansion. By the end of this month I do not think it will radically change, because the market has already taken Seaway expansion into account. However, by the end of this year we see spreads narrowing down by less than $15 closer to $10 because of the Gulf Coast pipeline extension project, which comes in place in the third quarter as per schedule. Hopefully, that would add 700,000 barrels per day of capacity.