Wed 12 Oct 2011, 15:18 GMT

Oil price forecast for Q4 2011


Report predicts short-term dips and long-term increases in oil prices.



A/S Global Risk Management's oil market analyst Thorbjørn Bak Jensen and oil risk manager Michael Poulsen have revised their oil price forecast downards for the next three months in the company's quarterly outlook.

In its forecast summary for the fourth quarter, Global Risk Management said: "Financial indicators are still dominating the oil market - debt crisis in both Europe and the US being the major cause. Furthermore, we are currently in an economic slowdown with lower demand. In the longer run, the inflation expectations, solved debt crisis and recovered economic growth will support oil prices as we enter 2012. All in all, we have revised our oil price forecast for the coming period down."

The company's quarterly report looks at three key factors influencing oil prices: fundamentals, financials and geopoliticals and calculates a Global Oil Strength Index (GOSI) based on its findings.

The Global Oil Strength Index (GOSI)

The index has decreased this quarter to 59, 14 points below the last quarterly report published in April 2011. The decline is primarily based on the following conclusions:

* Fundamentals: - Even though world growth outlook has been lowered the past months, the outlook on the fundamentals have strengthened slightly. The main reason is the prolonged conflict in Libya, which is taking out supply from the marketplace. So despite OPEC being in control of spare capacity, a lot of that spare capacity is located in the not-so-controlled Libya.

* Financials - Financial indicators for the world economy have been sliding on the back of debt crisis in the industrialised countries for the past few months. Money managers have reduced their exposure to the oil market as the IEA has released strategic storage, which makes a long position on oil more risky. Further, inflation indicators are pointing lower. Generally speaking the financials as a whole have become less bullish on oil prices the past few months.

* Geopolitics: - Geopolitics have had important effect during the past months, but the effect will fade again in the months to come. Libya is still a factor, but in the fundamentals sheet on supply/demand. On the geopolitical side the question is whether the Arab Spring is spreading towards Iran.

The Global Oil Strength Index, or GOSI, was introduced by Global Risk in 2010. The GOSI is a single number between 0 and 100 that signals Global Risk Management’s expectations for the development of oil prices. A reading below 50 indicates a declining trend and above 50 an increasing trend.

Global Risk calculates the GOSI by assigning a strength rating or index for each of three factors (Fundamentals, Financials and Geopoliticals) and then calculating a weigthed average based on the three strength ratings.

Average price forecasts:

Brent Crude (US$ per barrel)

Q4 2011 - 107
Q1 2012 - 109
Q2 2012 - 107
Q3 2012 - 113
Q4 2012 - 115
Q1 2013 - 117
Q2 2013 - 120

380cst Singapore Cargoes (US$ per tonne)

Q4 2011 - 623
Q1 2012 - 626
Q2 2012 - 605
Q3 2012 - 631
Q4 2012 - 635
Q1 2013 - 639
Q2 2013 - 647

3.5% Rotterdam Barges (US$ per tonne)

Q4 2011 - 597
Q1 2012 - 598
Q2 2012 - 578
Q3 2012 - 603
Q4 2012 - 606
Q1 2013 - 609
Q2 2013 - 617

0.1% CIF NWE Cargoes (US$ per tonne)

Q4 2011 - 930
Q1 2012 - 948
Q2 2012 - 933
Q3 2012 - 988
Q4 2012 - 1010
Q1 2013 - 1032
Q2 2013 - 1063

0.5% Singapore Gasoil (US$ per tonne)

Q4 2011 - 909
Q1 2012 - 932
Q2 2012 - 920
Q3 2012 - 974
Q4 2012 - 995
Q1 2013 - 1018
Q2 2013 - 1050

N2 Heating Oil (US$ per tonne)

Q4 2011 - 919
Q1 2012 - 940
Q2 2012 - 917
Q3 2012 - 973
Q4 2012 - 997
Q1 2013 - 1021
Q2 2013 - 1052

3% US Gulf Waterborne (US$ per tonne)

Q4 2011 - 605
Q1 2012 - 607
Q2 2012 - 586
Q3 2012 - 610
Q4 2012 - 613
Q1 2013 - 617
Q2 2013 - 625

Commenting on its forecast accuracy, Global Risk said "Accuracy in forecast in quarter (Q2) has been satisfactory even though the January forecast undershot and the April forecast overshot. The reason was higher-than-expected world growth until April and lower-than-expected growth thereafter.

"For the historical accuracy we are on average forecasting prices lower than the actual price development. This is especially for the medium to long forecasts. For the short forecast we are on average forecasting around the actual development, but with large differences, which reflects the volatility of the oil market."


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