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.
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 USD 90 and USD 125 during the next couple of years.
During these past two years Brent Crude Oil has become the global benchmark for a majority of physical oil transactions and also increasingly the preferred crude oil commodity in investment portfolios. Just recently we have seen two of the world’s most followed commodity indices, the S&P GSCI and DJ-UBS, both announce another percentage point weight increase of Brent in their portfolio for 2013 at the expense of WTI Crude, which still carries the highest weight but is sharply reduced from previous years.
The major spikes in Brent Crude during 2010 and 2011 were primarily triggered by both major and minor fears of supply disruptions, especially the Libyan civil war in early 2011 and the announcement of Iran sanctions due to uncertainties over its nuclear intentions in early 2012. Minor disruptions to production in Sudan, Nigeria, Syria and the North Sea also helped to support the price.
Up against these fears of supply disruptions, the global economy has been bumping along at a relative slow pace, resulting in only a small increase in global demand for oil. At times worries about recession, now realized in Europe, and other regions of the world has helped offset the above mentioned supply worries, resulting in minor downside corrections.
As a result the average price of Brent Crude has remained almost unchanged for the past two years at USD 110.75 per barrel in 2011 and USD 111.70 per barrel so far in 2012. The below chart shows the distribution of the traded volume on the front month contract since January 2011 and not surprisingly the result ties in very well with the average price observations. Almost 9% of all volume during the last two years has taken place between 110 and 111 while 54% of all traded volume has occurred within a narrow nine dollar range between USD 106 and USD 115.
