The safest place for the Barclays Q4 forecast does indeed look to be about $111 per barrel even as the geopolitical tensions as and when they manifest in Iran could lend the commodity a $6/bbl advantage at $117/bbl. The $111/bbl forecast is based simply on the market having rather boringly produced a chain of numbers all fairly close to $111 per barrel, in other words a purely backward looking form of reasoning.
The average price of Brent across the whole of 2011 and 2012-todate is $111.46 per barrel. The average for 2011 was $110.91 per barrel. The average for 2012-to-date is $112.19 per barrel. The Q3 average was $109.42 per barrel, and, as a benchmark for the current quarter, last year the Q4 average was $109.02 per barrel. Brent has traded between $111 per barrel and $112 per barrel on 11 of the past 12 trading days. The 50-day moving average is $112.07 per barrel and the 200-day moving average is $112.09 per barrel.
“Instead, we are choosing to remain a little more aggressive with our Q4 Brent forecast.” the Bank said and added, “the forecast was initiated at the start of July 2011 at $117 per barrel, has been unchanged ever since and we are maintaining that forecast.”
The extra $6 per barrel above the safe-looking $111 per barrel benchmark represents a view on the balance between the heating up of rhetoric over Iran’s nuclear programme, and the cooling down in perceptions of economic conditions.
With less than five weeks to go to the US presidential election, the Bank suspects that the election might prove to represent a subtle inflexion point in the diplomatic process.
“Over the course of those five weeks, we suspect that oil prices might be weaker, dominated by uncertainties and concerns over Spain, further concerns on whether the Chinese economy is stabilising or sliding, and by a general sense of economic inertia.” the Bank said.
Post-election prospects of Brent
In the eight weeks after the election, the Bank would expect geopolitical concerns to gain more purchase, as traders start to contemplate the possibility of a potential escalation in Middle East tensions in late-Q1 or Q2.
The balance between economic cooling and geopolitical warming is a key part of Barclays' oil outlook. It says:
The global oil market faces a marked increase in complexity after two years of remarkably stable
quarterly average prices. Both fundamental and geopolitical factors are in the process of significant shifts, and, in addition, consumer governments are likely to become more involved in price determination in terms of both direct and covert interventions, as well as through regulation of market mechanics.
“While price outcomes are likely to show a large amount of ‘noise’, on balance we would expect a starting point of low spare capacity combined with geopolitical complexity to trump the effect of disappointing economic outcomes, with prices likely to average higher in 2013 than in 2012.” it said.
A strong geographical split in the supply picture is expected to become more exaggerated in 2013. Supply growth, of both crude and NGLs, is expected to stay strong in the US, albeit with a deceleration from the fast pace of 2012.
However, supply performance in the rest of non-OPEC is expected to remain very disappointing, resulting in a third straight year of slow overall non-OPEC growth. The sluggish economic outlook, in particular the stabilisation of Chinese economic growth at lower rates than in previous years, is likely to keep global oil demand growth modest, although still positive.
“We expect overall growth at about 1%, with a further deceleration in the rate of oil demand decline in the OECD helping to compensate for the loss of vigour in demand growth in the key emerging market consumers. China’s share of incremental oil demand is projected to be a relatively modest one-third.” Bank added.
Source: Barclays Research