Non-OPEC crude oil supply is forecast to expand at its fastest pace for 30-years in 2014 and that this will have significant implications for OPEC’s leverage over oil markets as the need for its oil likely starts to shrink, noted London based Barclays in its recent market analysis.“We believe the oil market is at a turning point for fundamentals with pressure likely to build on OPEC to reduce its output in order for the market to be able accommodate supply growth from elsewhere,” it added.

However, given the problems and constraints afflicting output in key member states, OPEC may struggle to reach even a modestly lower call on its crude in 2014; so, in Barclays view, oil prices are likely to remain well supported, with Brent averaging over $100/barrel. Of course, should stability return to the Middle East and parts of North Africa, several OPEC countries could be in a position to raise their output substantially.

Barclays sceptical that problems currently affecting oil output in Iran, Libya, Iraq or Nigeria can be resolved any time soon. While a day of reckoning between oil prices and supply growth may still loom on the horizon, we doubt it will prove to be a 2014 event.

“We expect oil prices to weaken a little in early 2014, but instead of going outright short, a less risky trade in our view is to be short Brent relative to WTI,” the bank pointed.
Source: Barclay's