DNB bearish on oil

Dec 13 2013

The benchmark Brent oil price is forecast to fall to an average of $102 per barrel next year, according to a DNB Markets report.

Oil prices will continue to slide on average in 2014, similar to that seen thus far in 2013.

Non-OPEC supply growth is forecast to outpace global oil demand growth, creating a need for less OPEC oil. Geopolitical risks will, however, likely continue to be supportive for oil prices next year.

“We believe the ‘call on OPEC’ will decrease significantly in 2014, unless unplanned disruptions in oil production continue to increase,” DNB Markets said in its report.

Global refinery capacity expansion is set to outpace the growth in demand for refined products, which is not good for margins.

Total OECD oil stocks are currently at the top of the five-year range and will continue to be high during 2014. OPEC spare capacity will increase as Saudi Arabia will throttle back some output, but unplanned outages will create a wild card.

US oil demand will be slightly up next year and oil production will continue to grow, creating even lower need for imports.

Global oil demand will grow by 1.1 mill barrels per day in 2014, similar to this year, but areas of growth will shift slightly as OECD countries will show some small growth but non-OECD growth will be slightly weaker than seen in 2013.

Total OPEC supply is dependant on unplanned disruptions. If disruptions do not increase, OPEC countries will have to cut output. If this occurs, spare capacity will rise for every barrel.

Non-OPEC supply will continue to grow more than demand in 2014, mainly due to the US shale revolution, but DNB said that it also saw supply growth in many other non-OPEC countries.

The political risks to oil production will continue to come from Iraq, Iran, Nigeria, Venezuela, US, Russia, Israel, MENA, etc. These risks will continue to rise in 2014, but the Iranian intermediate nuclear deal does pose the potential for lower risk going forward.

DNB Markest concluded by saying that investors were starting to doubt the need to own commodities, as part of their portfolio. Gradually, more investors will start to believe that the commodity super-cycle is over. And what happens to investor flows, as US FED-tapering begins next year? 

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