Oil Market Report- October 2012
· WTI price decreases by 7.0% to USD92.1 per barrel during the review period
· IMF and World Bank reduce their 2013 growth forecasts
· Spain retains its investment grade sovereign rating
· OPEC production including Iraq declines by 0.83%QoQ in 3Q12
Bleaker outlook for 2013 stops oil price rally
The rally of the last three review periods was broken as WTI crude oil prices decreased by 7.0% during the review period (17 Sep-16 Oct 2012) to USD92.1 per barrel. Positive sentiment after the introduction of QE3 in the US gave way to concerns over the health of the global economy. These concerns were reflected in the reduction of 2013 World GDP forecast by IMF to 3.6% from 3.9%. World Bank also reduced its 2013 GDP forecast for East Asia to 7.6% from 8.0% citing slowdown in China as a significant concern. Headwinds coming from the European debt crisis also continue to foster uncertainty in growth forecasts. However, at the end of the review period Moody’s kept its rating for Spain at Baa3 which will allay fears which have been building up to a certain extent.
WTI prices average USD96.2 per barrel in 9M12; consistent with our forecast
The average WTI price for 9M12 is USD96.2 per barrel which is consistent with our start of the year forecast given in our Oil Market Outlook 2012 of USD95-100 per barrel. However OPEC average 9M12 crude price of 110.2 per barrel has been above our prediction of USD90-95 per barrel as the gap between OPEC and WTI remained due to the ongoing political situation in the Middle East, particularly the nuclear issue in Iran, civil war in Syria and political transition in Egypt. WTI has historically traded at a USD2.0 per barrel premium to OPEC as it is low Sulphur oil.
2012 World oil demand growth revised downwards
World oil demand growth for 2012 was revised downwards by 0.08mnbpd to 0.77mnbpd indicating a fragile economic recovery. This is lower than a growth of 0.9mnbpd witnessed in 2011. US, which is the world’s largest economy and oil consumer, has seen a slow recovery as unemployment rate has stayed stubbornly high at above 8.0% since the start of the financial crisis. This prompted the US Fed to introduce a series of quantitative easing measures which has had limited impact hitherto. However, the creation of higher than expected 114,000 jobs in September and dropping of unemployment rate to an Obama-era low of 7.8% bodes well for 2013 oil demand growth. Chinese and US economies are likely to play a key role in 2013 oil demand growth.
Increasing production trend comes to a halt
As we anticipated in our July 2012 Monthly Oil Report, OPEC production including Iraq declined in 3Q12 after a sustained rise since 2Q11. OPEC production including Iraq declined by 0.83%QoQ to 31.2mnbpd. We cited recovery of production in Libya, sanctions on Iran and Opec’s decision to adhere to output ceiling of 30.0mnbpd as the main reasons behind our expectation. Meanwhile, OPEC crude prices remained more or less unchanged at USD106.5 per barrel in 3Q12 as uncertain economic outlook kept prices under pressure despite the decrease in production.
http://www.globalinv.net/research/Monthly-Oil-Report-102012.pdf
