Why will Middle Eastern oil prices go up?
Opec and non-Opec oil supply growth will reduce over the next 18 months, a report said, with the average Brent prices for 2014 and 2015 ranging from $106 to $109 and from $103 to $108/bbl, respectively.
In a new forecast, the BofA Merrill Lynch Global Research said it is now revising up Brent price projections on tighter supplies. Last November it forecast a modest oil price drop in 2014.
“In our 2014 Energy Outlook piece we argued that a strong dollar, sluggish global nominal GDP growth and surging supplies would likely push Brent crude oil prices down to average $105/bbl in 2014, compared to $109/bbl in 2013," the report said.
“Yet, Brent crude oil front-month contract rolling prices have again averaged $109/bbl so far this year. A few factors help explain the persistently high prices. First, geopolitical concerns and supply disruptions have exceeded our initial assumptions. Second, the trade-weighted dollar has depreciated by about two per cent annualised against our strategists' projections. And a distant third, US inflation has surprised a bit to the upside.
“After four quarters of ~2 million bpd supply growth year-on-year, we now see non-Opec supply growing by about one million bpd year-on-year on a forward basis, leading to slightly tighter balances. Once again, much of the growth this year and next will come out of North America, while countries like Russia, China, Brazil, or Colombia, will provide only limited gains. Most other major producers will likely see declines.
“Meanwhile, we still see WTI falling below $100/bbl in 2H14. As for domestic US benchmarks, we see continue to see downside risks. First, near-dated Brent contracts moved into contango last week and this weakness in structure may feed into WTI.
“Second, major inventory draws at Cushing seem to have reversed just as Pony Express and Flanagan South pipes are set to come on line.
“Three, refiners will go into maintenance as the US driving season ends, setting the stage for renewed downward pressure on WTI. Even then, recent condensate export licenses granted by the Department of Commerce are a positive first step to debottleneck the North American crude market.
“As such, we modestly revise up our 2H14 and 2015 average WTI crude oil forecast to $98/bbl and $96/bbl, respectively,” the report concluded.