This year oil prices will eventually struggle on weaker market fundamentals. The average Brent prices are expected to hold at around $107 per barrel with some decline to $103 next year.
The OPEC supply management will make sure to sustain the average Brent price in 2013. Yet, a similar to 2012 spring prices weakening would not be an exception this year.
At the moment there are a number of drivers which will support the bearish oil market performance in 2013. The most powerful are the expected gains in US and Iraq output. The stronger production should sustain worldwide supplies elevated at a time of moderate demand growth. Moreover the global economic issues are not yet solved. The political fragility in Europe and the US budget spending cuts are still a downside demand threats.
In the first two months of the year crude prices gained some ground. That was on the back of lowered global economy tail risk along positive momentum period. Geopolitical concerns have also played a supportive role for risk premium. At the same time sustained quantitative easing from major central banks has poured more money into the futures market.
The crude market seemed to be propelled by the general improvement in global sentiment. Though, prices did appear to be higher than justified. That is respect of a contra-seasonal global crude stocks, relatively muted demand prospects and rebuilt spare capacity.
Beijing is still filling strategic tanks. Therefore the outlook in China could improve more. Yet, in February the IEA cut down its 2013 global demand forecast once again.
The rising Chinese and Middle Eastern demand is widely expected to be cover mostly by non-OPEC crude and NGL supply growth. Strong gains are projected for Iraq’s output, which could hit 3.7mn bpd in 2013. These expectations and growing Opec NGL production will also add to an obviously sufficient supply.
Currently the short-term prospect appears as a downside burdens to the market. The increasingly volatile supply outlook faces both downside and upside risks. Therefore it complicates any evaluation of oil market projections.