Saturday, January 14, 2012

ONG: Weekly Fundamentals..... Geopolitical Tensions Drive Crude Oil Volatility

Geopolitical tensions have been directing the movement of oil prices since the start of the year. Sanctions against Iran in condemnation of its nuclear developments had sent oil prices higher. The US has imposed sanctions against Iran's central bank and it's highly likely that Japan and South Korea will reduce their imports of Iranian oil. The EU has in principle agreed ton an embargo on oil imports. 
However, an EU embargo on Iranian oil imports will likely be delayed for 6 months so that countries including Greece, Italy and Spain can find alternative supplies. Data from the European Commission indicated that these three countries accounted for 68.5% of EU imports from Iran in 2010. The news triggered a sharp selloff in oil prices on Thursday and Friday. In Nigeria, President Goodluck Jonathan will meet protesters in an attempt to end the 4 day strike which will affect the oil industry. Oil prices should continue to move with great volatility in coming months as long as geopolitical tensions remain uncertain.
The DOE/EIA released its monthly short-term energy report last week, suggesting the price of WTI crude oil would average about 100/bbl in 2012, up +5/bbl from the average price last year. For 2013, the agency expects WTI prices to 'continue to rise, reaching 106/bbl per barrel in the fourth quarter of next year". Concerning global oil demand/supply, the DOE/EIA expects the tightening of world oil markets would 'moderate in 2012 and resume in 2013'.
Oil demand will probably increase +1.27 mmb, or +1.44% y/y, to 89.38 mmb in 2012. This, however, represents a -0.14 mmb drop from the projection made in December. The DOE/EIA also introduced the demand forecast for 2013. During the year, consumption will climb +1.47 mmb, or +1.44% y/y, to 90.85 mmb. On the supply side, non-OPEC supply is expected to rise +0.91 mmb, or +1.76%, y/y to 52.76 mmb in 2012, followed by a +0.76 mmb, or +1.44%, increase to 53.52 mmb in 2013. The need for oil supply from the OPEC will be 30.30 mmb and 30.76 mmb in 2012 and 2013 respectively.

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