The oil market has become somewhat stuck in terms of the dynamics of both prices and quantities. Indeed, had an analyst stated on the last day of 2010 that, until further notice, their predictions were that Brent crude oil would average $111 per barrel, that global demand would grow by 1% and that at the global level non-OPEC supply would struggle to grow, then that analyst would still be happy with their predictions today.
Since the start of 2011, there has been a long parade of $111 prices and 1% demand growth rates. Rounded to the nearest dollar, Brent averaged $111 per barrel in 2011, $112 per barrel in 2012 and, thus far in 2013, it has averaged $113 per barrel.
If one wanted to get ahead of the progression and forecast $114 per barrel for 2014, it would not be that far from consensus, with the average analyst forecast for 2014 standing at $109 per barrel in the latest Reuters price poll.
The $111 per barrel forecast would also have done well in terms of quarterly forecasts, being within $6 per barrel of the actual average in eight of the past nine quarters. The $111 per barrel forecast would also have been within $6 of the actual monthly average in 19 of the past 23 months, including each of the past nine months.
The seemingly magnetic attraction of $111 per barrel for Brent has held thus far in 2013, with a breakout to the upside stalling just below $119 per barrel in mid-February before prices headed back towards the comfort of a narrow range around $111 per barrel.
Indeed, absent a heating up of geopolitical tensions, a macroeconomic discontinuity or a shock that led to sharp fall in demand, then $111 per barrel might look like a safe forecast before one even looked at the headline global supply and demand numbers.
Source: Barclays