Analysts Are Generally in Consensus in Forecasting Brent Crude to Average Around $110/B

While analysts are generally in consensus in forecasting Brent crude to average around $110/b in 2013, the surge in North American production and question marks on the timing of new infrastructure has made for a highly divergent set of predictions for WTI. 

In their most recent price forecast, analysts at Goldman Sachs said Brent had averaged $110/b over the past 18 months. 

"Brent crude oil prices have been caught in an increasingly narrow range, where they are high enough to motivate supply, but not so high as to undermine the global economic recovery," they said. "On net, we see Brent crude oil prices continuing to trade in the recent range over the next year." 

"However, given the relatively low level of effective OPEC spare capacity and the ongoing tensions between Iran and the West over Iran's nuclear program, we still see the risk to oil prices as skewed to the upside," they added. 

This view was shared by analysts at Morgan Stanley who also forecast a 2013 Brent price of $110/b. 

"We continue to believe that prices will trade in a range, with upside limited by a likely demand response and downside limited by a supply response," Morgan Stanley said. 

"Though oil prices are likely to remain muted into 1H13, we believe that risks are skewed to the upside, with little room for error." 

GEOPOLITICAL TENSIONS 

Among the major concerns for Morgan Stanley were geopolitical tensions and supply outages, with prices otherwise expected to trade in ranges and demand responses likely to limit any significant or sustained price surge. 

While geopolitical tensions were generally considered the biggest threat to higher oil prices given the muted global economic growth anticipated for the coming year, Bank of America Merrill Lynch said any easing in tensions would likely also result in lower prices. 

"Notwithstanding a weak macro in 2013, we remain positive on energy," said BofAML analysts, who also forecast Brent at $110/b for next year. 

"The biggest swing factor for Brent could be the return or further loss of Iran's idled oil output." 

Saxo Bank analyst Ole Hansen said he expected 2013 to play out similarly to 2012, with dominant forces driving prices in either direction through the year, with $111/b to be the pivot. 

"Brent Crude oil has, despite times of elevated uncertainty, been trading within a relative stable trading range during the last couple of years, especially compared with previous years where extreme peaks and troughs appeared," Hansen said. 

"Looking ahead to 2013, we believe that this range trading will continue, as Brent Crude is currently sandwiched between several equal important factors, the combined sum of which should keep the price boxed in between $90 and $125 during the next couple of years." 

BEARS AND BULLS 

While $110/b appeared the mean 2013 forecast for Brent, there were outliers, with Commerzbank at $121/b and Barclays at $125/b among the more bullish. 

"After two years in the current holding pattern for prices, it seems clear that any significant shift in the dynamics of flat prices requires either a significant change in the fundamentals of oil balances, or some significant geopolitical upheaval," Barclays analysts said. 

Barclays added that while fundamental balances, OPEC strategy, market psychology and macroeconomic discontinuities all looked unlikely to provide a catalyst to push crude oil prices out its current holding pattern, geopolitical risk was another matter entirely. 

"While there are other likely areas of interest for the oil market in 2013, in our view the main nexus for the transmission into oil prices is likely to be the Middle East, with the spiraling situations in Syria and Iraq layered in on top of the core issue of Iran's external relations," Barclays said. 

But analysts at Commerzbank said the current market state may have been misread. 

"We believe that the market is too optimistic for the supply prospects and too pessimistic for the demand prospects," Commerzbank said. 

"The market is thus likely to tighten over the course of the year... In the coming year, the current equilibrium of influencing factors should be resolved in the favor of the price-supporting factors. It is questionable whether supply will be surprisingly positive again next year." 

Among the price supporting factors defined by Commerzbank were supply risks from Iran, the Middle East and the North Sea, as well as the ultra-loose monetary policies of central banks. 

Analysts with VTB Capital, however, argue that price-depressing factors are more likely to dominate oil markets next year, setting their price forecast for Brent at a bearish $95/b. 

"We believe that visible inventory levels confirm our view that the market is in oversupply as they have rebuilt sharply since the start of the year, albeit somewhat patchily by region and by oil type," VTB Capital said. 

"OECD crude inventory has risen from the bottom of the five-year range at the start of the year towards the top of it in October... unless the significant oversupply to the market is cut, then the oil price is likely to give way at some point, and more likely sooner than later in our view." 

VTB also said some of the premium currently in the market this year related to the threat of an Israeli attack on Iran would also drop off further into the New Year. 

US CHANGES 

Despite the relative consensus on the factors affecting Brent in 2013, if not necessarily the direction these will lead prices, for WTI uncertainty over changes currently taking place in the North American oil sector meant a spread of forecasts ranging from $81.40/b to $115.00/b and a Brent premium from anywhere between $7.50/b and $20/b. 

"For WTI, surging shale oil output combined with infrastructure and export constraints could isolate North American crude markets," BofAML said. 

"Of particular concern is that oil output growth in the US is now exceeding previous growth rates experienced in dry natural gas. Thus, the saturation point for the US crude oil market could come faster than the market expects despite the large gap in imports." 

Indeed, such has been the growth in North American production, climbing to 19-year highs this year, that even when new transport capacity comes on-stream in 2013 it may not be enough to meet the increased supplies. 

"While the Brent crude oil market has continued to tighten, WTI prices have traded at an increasing discount to Brent as the barrels at Cushing await the development of excess capacity to transport them to the US Gulf Coast," Goldman Sachs said. 

"We continue to expect that this spare capacity will be created when the Seaway pipeline ramps up from its current capacity of 150,000 b/d to its full capacity of 400,000 b/d in early 2013." 

This, Goldman said, has not been helped by delays to BP's Whiting refinery conversion. 

"Assuming the Whiting crude unit is delayed by three months, this would leave around eight million barrels of crude stocks in Cushing that would otherwise have been consumed by the Whiting refinery, all else equal," Goldman said. 

"The expansion of Seaway in January, and the addition of around 400,000 b/d of new pipeline capacity from the Permian Basin that will divert crude flows away from Cushing, will, we believe, still shift the Cushing balance into a substantial deficit in 2Q13, albeit at a slower pace." 

2013 Forecasts 

Goldman Morg Stan Barclays BofAML Commerzbank Saxo VTB WTI $102.50 $96.50 $115.00 $90.00 $108.00 N/A $81.40 Brent $110.00 110.00 $125.00 $110.00 $121.00 $111.00 $95.00