Global economic activity is starting to accelerate
Lately the global economy demonstrates optimistic signs of revival. At the beginning of 2013, the global growth outlook is turning more and more positive, despite the fact that Europe is still in a deep recession. This confidence cause OECD oil demand moderate contraction. After a mid-year drop, the emerging markets growth also demonstrates improvment in the first two weeks of 2013, according to ofiicial economic data. The upside performance of China is a good surprise. In respond to these upward tendencies the emerging markets’ oil consumption rose. Chinese oil consumption rebounded by 0.94 million barrel per day in the beginning of the forth quarter of 2012. On a year over year basis, the scales hit the high of 10.5 million barrels per day. This is a record never seen before. India, South Korea and Taiwan improved their manufacturing power by the end of 2012 additionally driving oil demand upward.
The warm winter is temporarily depressing oil demand
In this context it seems perhaps surprising that Brent crude oil prices have failed to increase much in recent weeks, hovering around $110-112/bbl. Partly to blame is the mild winter weather experienced so far. In Europe, unseasonably warm weather is depressing the demand for heating oil, in turn driving down distillate margins. The US East Cost is also experiencing warmer-than-normal weather. So far in January temperatures were 1.4 and 0.5 std dev above the historical mean in OECD Europe and the USA, respectively. If such warm weather were to continue, that could reduce Q1 oil demand by 230 thousand b/d in Europe and 140 thousand b/d in the US compared to normal weather, respectively.
Brent crude oil prices likely to stay range-bound for now
Given the warm winter weather, low European refining margins, and receding non-OPEC disruptions, the Brent crude oil market is missing a catalyst to propel prices higher short-term. On the other hand, OECD total petroleum stocks outside of the US remain low. Moreover, the Fed is likely printing $1 trillion this year, geopolitical risks are high, and social spending within OPEC will likely keep budget break-even costs elevated. We stick to our 1H13 forecast of $109/bbl and see Brent crude oil prices stuck in a range for now. But faster economic growth later in the year could awaken the giant and put Brent prices on an upward path.