Report revises oil price outlook upwards

Denmark-based A/S Global Risk Management has revised its quarterly outlook for oil prices higher due to bullish fundamentals and financials.

The company says it expects to see an increase in oil prices over the next year and points out that two out of three factors are bullish - fundamentals due to the risk of supply disruption and financials due to the risk of inflation.

Global Risk sees biofuel as a wildcard. The company says that the 'potentially failed' biofuel project in Europe (reports show that bio fuel pollutes more than conventional fuels), can spur immediate demand for lighter products such as diesel.

With a total European biofuel market of 10,000,000,000 litres per year, demand for conventional diesel /gasoline could increase dramatically if the EU decides to pull the plug on subsidies for biofuels.

"The dark horse is biofuel which was introduced primarily for environmental reasons, but now seems to be polluting more than conventional fuel. This could spur demand for lighter products in a situation with low inventories," Global Risk says.

Distillate fundamentals are said to be very bullish due to low inventories. European distillate inventories are at their lowest seasonal levels since 2004, and should the need for diesel/heating oil pick up as temperatures drop, Global Risk estimates a bullish scenario for prices.

Geopolitics have been set as neutral for oil prices. There is a risk of a military escalation in the Strait of Hormuz, which would immediately affect oil prices to the upside.

The Global Oil Strength Index (GOSI)

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.

Fundamentals: - Rating: 65 (+25 vs June 2012). According to the report, the supply/demand situation appears to be walking a tightrope and biofuel is a wildcard that could spur demand for lighter products.

Financials: - Rating: 60 (unchanged vs June 2012). The report says that the fact that central banks around the world are trying to 'ease the pain' increases inflation fears, which could in turn lead to higher oil prices. Debt issues continue to draw prices in the opposite direction.

Geopoliticals - Rating: 75 (-5 vs June 2012). The report concludes that the risk of a military escalation in the Strait of Hormuz and the 'non-event' third round of negotiations on Iran’s nuclear program keep geopolitics at a highly bullish GOSI number.

GOSI - Rating: 67 (+7 vs June 2012) - The GOSI is still above the 50 level, indicating that Global Risk's oil price expectation is bullish.

Average price forecasts:

Brent Crude (US$ per barrel)

Q4 2012 - 112
Q1 2013 - 114
Q2 2013 - 116
Q3 2013 - 117
3.5% Rotterdam Barges (US$ per tonne)

Q4 2012 - 651
Q1 2013 - 660
Q2 2013 - 670
Q3 2013 - 678

0.1% CIF NWE Cargoes (US$ per tonne)

Q4 2012 - 961
Q1 2013 - 983
Q2 2013 - 983
Q3 2013 - 986

380cst Singapore Cargoes (US$ per tonne)

Q4 2012 - 673
Q1 2013 - 679
Q2 2013 - 686
Q3 2013 - 692

0.5% Singapore Gasoil (US$ per tonne)

Q4 2012 - 931
Q1 2013 - 946
Q2 2013 - 961
Q3 2013 - 969

3% US Gulf Waterborne (US$ per tonne)

Q4 2012 - 651
Q1 2013 - 660
Q2 2013 - 671
Q3 2013 - 676

N2 Heating Oil (US$ per tonne)

Q4 2012 - 960
Q1 2013 - 980
Q2 2013 - 975
Q3 2013 - 974


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Report revises oil price outlook upwards

Oil price forecast is revised higher due to bullish fundamentals and financials.

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