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This Is Where Oil Will Be on March 31

by | published December 7th, 2012

One of the most important topics over the past week in Moscow has been the various forecasts of where crude oil prices are likely to be in 2013.

The figures are all over the place, owing to the high level of uncertainty on a number of basic elements.

According to the Russian Ministry of Energy, or Minenergo the “official” government estimate is forecasting oil prices low – at about $80 a barrel.

However, there were other estimates floating about this week. The Ministry of Finance (MinFin) has set up what can only be described as a recession approach. That figure puts oil prices at $62-$65 a barrel.

Then there is the Ministry of Economic Development (MED). MED considers both domestic and external trade considerations. The estimate coming from this ministry also is lower than that of Minenergo, but at $75 is higher than MinFin.

Against this backdrop of competing oil price forecasts made by battling ministries, estimates from the outside including my own are much, much different-as in decidedly to the upside.

Granted, all of the non-Russian suggestions cite the three unknowns limiting the cost of crude elsewhere: the American fiscal cliff, Europe’s ongoing problems, and the expected levels of productivity and demand coming from China.

Nonetheless, a strong consensus has emerged from North American and European experts during our sidebar conversations in Moscow.

The overwhelming view is that oil prices will be moving higher next year, although the continuing volatility will guarantee that this is hardly going to be a straight line advance.

Even still, there will be a number of factors will push Brent and WTI prices as much as 20% higher next year — particularly in the first quarter…

Volatility a Key Factor Moving Forward

First, attendant to the three concerns noted above, we all are noting the following. There is little likelihood shared by anybody I spoke to that the “bickering children” inside the Beltway would actually allow the U.S. market to fall off the cliff.
There will be a more or less cosmetic remedy arrived at setting the stage for more substantive decisions later. Much of this is not going to be received well by the stock market, but that will work itself out in short order.

On the European scene, I must admit that optimism witnessed in Frankfurt and Warsaw a few weeks ago was more pronounced in Moscow among the Europeans there. Nobody believes the softness in the continental economy will be disappearing anytime soon.

But the stark fears of a collapse in the Eurozone, so much a staple of the taking heads repertory on TV throughout much of 2012, is simply absent as we move to the end of the year.

As for China, we all agreed that this has been much ado about nothing. The Chinese economy has “cooled” to an annual rise in excess of 7%. The demand level is still there and so is the enticement level expected from a quickly expanding middle class.

These three elements, therefore, are converging in a manner more supportive of higher crude prices. All of them are on the demand side of the equation. As each improves, so also will the projections for oil and oil product volume.

Supply Fundamentals Driving Prices Upward

On the supply side, we continue to witness rising costs in both conventional and unconventional crude production. This development largely results from the smaller fields, inferior quality crude and accelerating infrastructure expenses associated with drilling. Combined with these are the ever-present geopolitical problems in the Persian Gulf, Syria, and North Africa.

These considerations translate into higher crude prices in the first half of 2013.

At this point, we had some divergence on what those prices would be. At a minimum, all agreed that Brent would be at no less than $115 and WTI no less than $95 by the end of the first quarter.

My view, on the other hand, puts both a bit higher – Brent at $127 and WTI at $105 by March 31. Most of this should be fueled by rising indicators of economic recovery (even sluggish signals) on both sides of the Atlantic.

Should the Iranian situation deteriorate, or the standoff between Iraqi central forces and Kurdish provisional militia (the Peshmerga) worsen, the situation in the Persian Gulf alone would add a risk premium to both benchmarks.

Sincerely,

Kent

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  1. Razor
    December 7th, 2012 at 13:02 | #1

    No offense, but predictions are useless and should not be traded upon. At one time you stated that Oil would hit $150 in 2012. How did you fare in that prediction? There are so many factors and unknowns that could push oil either way. The key is to be nimble and ready to play it either way. The weatherman has trouble forecasting what will happen tomorrow. Your prediction 4 months out holds little water with me. I would rather hear an opinion on support and resistance levels of Oil in the current environment.

  2. Ronald G OConnor
    December 7th, 2012 at 20:15 | #2

    gloom and doom; the list of items that could shock oil prices is always present, the middles east could always “blow up” with something. This analysis is nothing but a rehash of “normal” possibilites. The reality is that the world’s economy is in the tank and will be there for years, the worst is probably yet to come. True, it is costing more to get worse qual oil, but how will demand drive prices in this economyh?

  3. enthusceptic
    December 8th, 2012 at 09:11 | #3

    - And if we look a little further to 2014 when the US -and Canada?- is supposed to start exporting natgas, that should give a real boost to natgas stocks. Oil prices remaining high should make unconventional oil profitable. Here in Colombia oil is not easy pickings, but maybe now it’s smart to keep an eye on Ecopetrol.

  4. enthusceptic
    December 8th, 2012 at 10:01 | #4

    The election wasn’t a big problem even if people in the investing community mostly favor the Republican party ideologically, but the stock market has done very well under Democrat presidents.
    The fiscal cliff, however, puts a damper on trading all over the world.

  5. Cathy Kandravi
    December 9th, 2012 at 05:20 | #5

    I am curious that if you take all the drilling and fracking and pipeline down and up stream and put all of those together that there has to be a winning by the use of supply and demand market of who takes advantage of all of those categories on and off shore, from the start to the end where will the cash generate. I think the answer of coarse is the gas station distribution system that people pay for there fuel and the station gets it pennies per gallon which is more or less an overhead deal to get customers in there door to buy coffee donuts drinks etc.but where does that money end up. It looks like Obama is going to get his wish to help China get Canada fuel because he nixed or slowed down the Keystone which helps his buddy Warren with his rail road and now the game is already put some guru’s on the defensive because of communism, like the Keystone will still happen but there was a lot of money already wasted just look how much that hurt EPD and Endbridge the Houston ship channel has more pipelines underground than the pope has followers, that hurt and TYSON FOODS AND SYNTROLEUM AND MANSFIELD selling chicken fueL under the name of DYNAMIC FUELS to the largest fuel user in the world the US NAVY AT A PRICE THROUGH THE ROOF THAT THE TAX PAYER HAS NO IDEA THAT 6 TIMES THE PRICE OF A GALLON TAKES THE HEART OUT OF ANY BUDGET LIKE SOLYNDRA BEFORE THEY WENT UNDER ON A PRESIDENTIAL LIE , BUT BACK TO MY QUESTION WHERE IS THE BEST DEAL FOR THE BUCK THE STOCK HOLDER NEEDS A HINT. I THINK MYSELF THAT BIG OIL HAS GOT SO MUCH OF OBAMA’S PAY TAX RULES THAT THE SMALL GUY HAS ROOM TO FIND A NITCH. THOSE SMALL GUYS WILL BE THE SMALL REFINERIES THAT ARE GETTING A BANG FOR THERE BUCK BECAUSE OF SEVERAL COSTS AND OVER HEAD PROJECTIONS THE OLD (ROI) IS IN THERE HANDS BECAUSE THEY ESCAPE THE STRINGS OF THE BRIGHT LIGHTS, MY QUESTION IS ARE THE hfc’s the western the dk type refineries going to shine because they are out of the way but they are still in strategic places where fuel will be used at a market where people have money to fill up there tank and are not forced to ride the bus like the subway city slickers are. We have all the companies getting really a glut of fuel to market per my last talk with some big producers in Canada they don’t like to say glut but they say that is what they have so who will take advantage of that. A lot said hope it made sense but I feel the smaller refineries will shine on this continent don’t know about the rest of the world but there is a glut and the nat and liq. will come in sooner or later , what are your thoughts on when that takes shape and when it does how hard is it for the smaller refineries to change gears and satisfy that need? Thanks and I hope I made sense.They could have had T B Pickens fuel stops with clean gas years ago and they still drag there feet on that but that corner is coming but it is like they want to send the nat gas and the liqgas away from the USA, IT DOES NOT MAKE ANY TREE HUGGER SENSE, LIKE WE COULD PROTECT THE ENVIRONMENT BUT WE NEED TO WAIT. EITHER WAY THERE WILL BE A NEW CURRENCY AND I THINK IT WILL BE YANG AND GOLD TO BACK IT UP BUT I HOPE THE BUCK THE DOLLAR STILL CARRIES WEIGHT BUT THE PAPER HAS TO BE GETTING THIN YOU CAN CUT EVERY DOLLAR IN HALF ALMOST NOW THAT WILL BE A SAD DAY WHEN BEN HAS NOTHING LEFT TO SAY!

  6. E Johnson
    December 17th, 2012 at 13:36 | #6

    Kent, as usual your article is well written…however, we all know how your last prediction for oil prices fared this past summer.

  7. SAM RAMANI
    December 28th, 2012 at 14:20 | #7

    What will happen when all the oils that are recovered flow into the system? should not it put a damper on the gas price at the pump? I predict there will be a .50 cent reduction at the pump by summer of 2013.It will be nice if someone can evaluate the world production including USA/Canada/Mideast and show the consumption worldwide including china, india and japan. Then we can get a fair picture of where the oil prices will go in 2013.

  8. William King
    February 11th, 2013 at 16:15 | #8

    Why should gas & oil go up with increasing production?

  9. Steve
    February 11th, 2013 at 21:31 | #9

    Any predictions as to how high the price of gasoline will rise by peak time in the summer?

    Fuel prices are rising even now. Gasoline is up by 40+ cents from the lows of December and early January. Natural gas, while still low, is up by at least 30% from a year ago.

    Another question: how to protect yourself against the rising cost of gasoline? Is it possible to arrange for a year-long gasoline contract at fixed price, similar to what natural gas companies do with their customers?

  10. Antwan D. Wright
    February 25th, 2013 at 14:32 | #10

    I personally believe the government will raise prices again and will never eqaute the prices under fair terms..

  11. ken shannon
    March 8th, 2013 at 11:46 | #11

    I have seen the video on the coming shortages, due to exponential growth and utilization of resources and debt. I have also seen the video on the large oil find in Australia. Are the predictions of an oil shortage consistent with what we know about oil reserves?

  12. Stefan Ides
    March 8th, 2013 at 22:17 | #12

    O.k, the silver predictions didn’t come true [yet], bc the market is heavily manipulated by a few major entities, and that seems to hold true for oil, in that OPEC is a cartel, and ME powder-keg fears & theories are continuously used to create an environment of severe impending scarcity…
    China[India?], who get much of their oil from Iran, won’t stand for any disruption from Israel/the US… and we all know who OWNS the US!
    And, when the much touted ‘Coober Pedy-game-changing’ find will come on line, it can all be absorbed by SE Asian demand [including Chindia and Japan], leaving plenty for the rest of the world elsewhere.
    So,it seems the Russian estimates aren’t so unrealistic after all?
    The part I have a real problem with, is that BIG OIL with its insane profits and CEO bonuses/shareholders get all the benefits, and we the people get nothing but environmental degradation and high prices at the pump!!! Nothing new there…Maybe Kent’s estimates are so high, bc he knows, what’s being planned to confirm his predictions? Didn’t he attend the meeting at Chatham Castle?

  13. NINAH PATEL
    March 11th, 2013 at 10:59 | #13

    I WOULD LIKE TO KNOW ABOUT WHEN WAS NATURAL GAS & OIL WILL BE STATED IN FRANKLIN, PA OR IS THERE ANYWAY WE CAN FIND PERMIT ISSUE, WHEN, WHERE AT FRANKLIN, PA, AND AROUND OUR AREA.THANKS!
    NINAH,
    GM

  14. Richard
    March 11th, 2013 at 11:12 | #14

    I get a few financial letters over the years and compare their findings and predictions. As far as consistency this letter is far off what I get from one in general. I won’t say its name, but they are down to the bone estimates and as far as growth goes, there is no comparison to what you try to do.
    For what is paid to get these subscriptions, this is way more than I pay others and less over the years profit-keep trying, though.

  15. Ken Butak
    March 15th, 2013 at 21:49 | #15

    What might be the effect on oil and oil company stocks if the renminbi becomes the recognized global reserve currency?

    I read this morning (3-15-13) that substantial movement in this direction is taking place now in Shanghai, China and Indonesia. These folks are going to tell us dollar-denominated spendthrifts to go elsewhere with our currency soon. They are starting to trade amongst themselves by medium of Chinese currency. Of course, up to this time, almost all oil movement is converted to dollars to complete the transactions. This is not going to last. Won’t there inevitably be a substantial impact on American oil companies and their stock prices if the dollar gets trashed in the eyes of the rest of the world?

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