LONDON, Nov 28 (Reuters) - U.S. crude is set to move above $100 (U.S.) a barrel by 2013 as the world’s largest oil consumer steps up efforts to rein in its inland oil glut, which has made its oil much cheaper than other benchmark grades over the past year, according to a Reuters poll.
The poll of 32 analysts also forecast U.S. light crude oil , also known as West Texas Intermediate (WTI), would in 2012 average $96.50 a barrel from a $92.00 forecast last month.
In the mid term, U.S. crude will still remain at a discount to rival benchmark Brent, especially if the European Union slaps sanctions on Iranian oil, in a move that will tighten European oil markets.
The average of 36 analysts forecasting Brent crude futures for next year expect the European benchmark to stand at $107.00 per barrel, up from their October forecast of $106.80.
An increase in U.S. light crude futures will help reduce the spread or gap between both benchmarks next year, after several banks moved to cut their spread estimates when plans were unveiled in mid-November to revert the flow of the Seaway Pipeline so the glut of crude in landlocked Cushing can flow to the Texas coast.
The Brent-WTI spread
Although the spread is expected to tighten in the longer term, analysts including those at investment bank Goldman Sachs said the differential was likely to widen in the near-term after the rapid unwinding in recent weeks.
“As long as crude still needs to flow from Cushing to the Gulf Coast via barges, rail or even truck, some discount will still be necessary to encourage this flow of oil,” the head of commodities research at Natixis Nic Brown said.
“As such, WTI prices can remain below Brent until pipelines have fully adjusted, albeit at a gradually decreasing discount.”
Renewed tensions with Iran after the imposition of fresh sanctions against the OPEC producer over its nuclear programme, together with France’s retracted statement about an import ban could also counteract the tightening effect of the Seaway pipeline, Commerzbank analysts warned.
“This could drive prices upwards because competition for non-Iranian oil would increase accordingly,” they wrote in a note.
“A far-reaching delivery boycott of Iranian oil could thus again widen the price difference between Brent and WTI... The consequences of an oil embargo against Iran could be partially compensated for by Libya’s return to oil production.”
A fine balance
Despite the upward revisions for WTI prices, analysts have warned that market conditions remain turbulent, and the threat of supply disruptions could be offset by increased output from oil producing countries feeling the heat from social protests in the Arab world, and as the outlook for oil demand remains mixed.
“We expect crude oil prices to soften on cooling oil demand as economic activity in the OECD stalls,” Petromatrix’s Olivier Jakob said.
“Nevertheless, still tight supply will limit the downside to oil prices, as key Middle Eastern producers ramp-up public spending amidst ongoing political tensions in the region.”
Tempered factory output growth data from China, which shows a slight fall to 12-13 per cent in 2012 due to weakening global demand, is also a concern for oil markets.
“Oil prices - especially Brent- still don’t reflect the cooling down of the global economy,” LLBWs’ Frank Schallenberger said. “With oil inventories (e.g. in the U.S.) still at a relatively high level, Chinese imports being moderate in the last few months and Libyan production growing faster than estimated, Brent still seems to be too expensive.”
While analysts agreed the economic outlook for Europe and the U.S. and the geopolitical situation in the Middle East remain uncertain, they are split on their effects on prices.
On the cautious side, Credit Agricole’s Christophe Barret said while the market was expected to remain tight in the near future, waning demand for heating oil after the winter amid the fragile outlook of the economy could put a lid on prices.
Others believe that dwindling stock levels and robust growth could nevertheless propel prices to unsustainable levels that would temper growth.
“At this stage, $100 a barrel oil looks likely through much of 2012 for both benchmarks, driven by robust growth in the big developing economies and still weak stock levels. This could put a dampener on growth in the big developed economies,” ANZ’s economist Michael Creed said.
Others including BNP Paribas’ head of commodity market strategy Harry Tchilinguirian believe that still-low interest rates and the possibility of more U.S. monetary policy easing could remain supportive for risk assets like oil.
Fundamentals such as resilient global growth demand, particularly in emerging markets, demand for heating oil from winter and declining inventories of crude and oil products could all lend support, he said. (Editing by James Jukwey)