Mon 27 Feb 2012, 13:56 GMT

Report predicts sustainable uptrend in oil prices


Hedging specialist says the underlying technical trend looks more sustainable than the 'boom and bust' prices of 2008.



Denmark-based hedging specialist A/S Global Risk Management Ltd. has today released a report that forecasts where oil prices will be heading over the next few months.

Entitled: "Extraordinary oil supply update: Why are the oil prices increasing and what is the outlook?", the document includes an oil supply update, oil technical update and product price forecasts for the remainder of 2012.

In its oil supply update, Global Risk points out that several African and Middle Eastern countries are showing decreased oil output totalling levels of 1.0-1.2 million barrels per day, which, it says, is set to continue to support oil prices.

Iran's affected production is currently at around 100,000 barrels per day, but a shutdown to cope with lower exports would lead to many of its 30-40-year old oil facilities requiring a significant amount of time to be restarted.

With existing oil production at around 1 million barrels per day (bpd), Libya is 550,000 bpd short of pre-war levels. In Yemen and Syria, oil production is estimated to be negatively affected by 100,000 bpd in each country. Meanwhile in South Sudan, oil production has come to a complete halt and the affected volume is 350,000 bpd.

According to Global Risk, Saudi Arabia may still have the capacity to offset the current missing production, but it will not be able to replace the quality. Furthermore, the price of crude has a history of rallying when the spare capacity of Saudi Arabia diminishes.

In its technical update, Global Risk says that the long term uptrend in oil prices from 2009 remains intact, and technically looks more sustainable than the 'boom and bust' cycle of 2008.

The current uptrend since 2009 is close to a 45 degree upwards angle, which Global Risk considers to be more sustainable than the 'straight upwards' trend in 2008 when WTI rose to a record high of $147.27 per barrel on July 11th 2008 before plummeting to $33.87 on 19th December 2008.

Commenting on the short term trend, Global Risk said: "The short term outlook indicates a test of the 127. From there a sideways movement (+/- $4) for approximately a month has the best odds. A potential release from the strategic reserves would be dropping the hammer on prices, alas only for a short period of time. We recall the June 2011 effect was washed out in less than 6 days (from 112.5 to 102.5 and back up again). As long as the underlying fundamental supply issues are not resolved, the trend will be upwards."

Average price forecasts:

Brent Crude (US$ per barrel)

Q1 2012 - 119

Q2 2012 - 126

Q3 2012 - 123

Q4 2012 - 124

380cst Singapore Cargoes (US$ per tonne)

Q1 2012 - 733

Q2 2012 - 774

Q3 2012 - 758

Q4 2012 - 767

3.5% Rotterdam Barges (US$ per tonne)

Q1 2012 - 697

Q2 2012 - 746

Q3 2012 - 727

Q4 2012 - 733

0.1% CIF NWE Cargoes (US$ per tonne)

Q1 2012 - 1010

Q2 2012 - 1087

Q3 2012 - 1062

Q4 2012 - 1071

0.5% Singapore Gasoil (US$ per tonne)

Q1 2012 - 1008

Q2 2012 - 1078

Q3 2012 - 1059

Q4 2012 - 1068

3% US Gulf Waterborne (US$ per tonne)

Q1 2012 - 692

Q2 2012 - 739

Q3 2012 - 722

Q4 2012 - 729

BP   Denmark 

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