Oil Market Outlook 2012

Global Investment House of Kuwait today released its Oil Market Outlook 2012. Here are the major highlights:

  • Average WTI crude oil prices increase by 19.6%YoY to USD94.9 per barrel in 2011
  • Oil prices expected to be volatile as European debt crisis remains unresolved
  • China to remain the main oil demand growth driver in 2012
  • WTI crude oil prices expected to stay in the range of USD95-100 per barrel in 2012

Increase in geo-political risk keeps oil prices high

Oil prices ended 2011 close to USD100.0 per barrel mark as political upheaval in the Arab world outweighed concerns over health of the global economy. The average price for 2011 increased by 19.6% to USD94.9 per barrel. World oil demand grew by 1.04%YoY in 2011 driven by demand in the emerging countries, particularly China. Threat of supply disruptions remained a major theme throughout 2011, particularly with the start of civil war in Libya which saw WTI prices spike above USD110 per barrel mark in 2Q11. The other dominant event has been the ongoing European debt crisis which threatens to throw a spanner in the global economic recovery. The IMF has already downgraded its estimate for world economic growth for 2012 in view of the prevailing risks.

Oil Price Movement

Spare capacity sufficient to make up for decrease in Iranian exports

Saudi Arabia still commands the largest spare capacity of around 2.71mnbpd despite the increase in production in 2011. This holds particular significance at a time when Iran is coming under further pressure because of its nuclear program. European Union plans to halt oil imports from Iran as part of the sanctions. Gulf nations are ready to make up for loss exports from Iran according to a Saudi official as reported in the media. Saudi Arabia also played a vital role in filling up for loss in production in Libya.

Oil market outlook 2012

Global Research expects average WTI crude oil price to be in the range of USD95-100 per barrel in 2012 which is also consistent with the Bloomberg Consensus crude oil price of around USD98.7 per barrel and close to 2011 average price of USD94.9 per barrel. The expected growth in world oil demand by 1.2% to 88.9mnbpd will be fueled by an expected world real GDP growth of 3.3% in 2012. The increase in geo-political risk is also likely to keep an upward pressure on prices. However, any escalation of European sovereign debt crisis presents a major downside risk to oil prices.

Volatility to persist; Major risks still exist

The volatility in 2011 is likely to extend into 2012 as the European debt crisis remains unresolved, Arab Spring continues and unemployment remains high in the US. Meanwhile, new sanctions on Iran and subsequent military drills by the Iranian Navy has increased the risk of stand-off between the US and Iran which could severely disrupt oil supplies. The transition of power in North Korea has also increased the geo-political risk with lack of clarity over the direction the isolated country will take.

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