Spot and futures price of Brent crude (daily)
Theoretically, the futures market should be more stable
than spot prices, as futures prices are based on long-run
fundamentals while spot prices reflect short-run shifts in demand and supply. However,...
the two have been moving together, and futures prices have been as volatile as spot prices amid intensifying and lingering political and economic risks (Figure A1.20). The front-month futures price, for example, jumped from $111.10 at the end of December to $118.90 in February, before subsiding to $109.80 in mid-March.
--- Oil price prospects ---
The March report of the International Energy Agency showed growth in world oil supply outpacing growth in demand. Supply increased by 2.8% to reach 90.9 million barrels per day (mbd), while demand increased by 1% to reach 89.8 mbd in 2012. In February, supply continued to inch up, largely from rising oil production in Iraq and Saudi Arabia.
Supply conditions are forecast to improve in the short term. The March US Energy Information Administration report forecasts the
global supply of oil to increase by 0.8 mbd in 2013 and 1.9 mbd in 2014 as countries outside of the Organization of the Petroleum Exporting Countries (OPEC), largely the US and Canada, recover from unplanned outages and scheduled maintenance. The global consumption forecast was revised downward from the February report, to a slight increase to 90.1 mbd in 2013 on higher demand expected in the PRC.
In 2014, consumption is expected to further increase, albeit at a still-tepid rate,
to 91.5 mbd. The small increase in demand is in line with the ADO forecasts of 1.2% growth in 2013 and 2.0% growth in 2014 in the major industrial economies—rates that are much lower than the pre-crisis average of 2.5% in 2003–2007 and so indicate a global economy that remains weak and fragile. OPEC members notionally bound by the
group’s 30 mbd target are expected to continue to produce more than their quotas to accommodate the projected rise in world oil consumption and counterbalance supply disruptions. Increases in production are expected from other OPEC members such as Iraq, Nigeria, and Angola.
Notwithstanding these developments, periodic disruptions will likely continue in light of political tensions in major producer economies and a new wave of political unrest in Africa. Tensions are still high in Syria, Sudan, and Iraq, where payment disputes between Baghdad and the Kurdistan regional government will likely reduce output from Iraq’s northern oil fields. With no resolution in sight to the issues confronting Iran, its oil production is forecast to continue to fall. Although concerns about the persisting fragility of the global economy are tempering oil price spikes, global oil prices are projected to stay close to 2012 levels and average $110 per barrel in 2013. Changes
in the regional distribution of oil demand and supply, sociopolitical upheavals, speculation, and the financialization of commodities will ampliamplify price shifts in the short run. In 2014, prices are forecast to soften and average $105 per barrel on account of better-supplied markets and easing geopolitical tensions.
---Source: Bloomberg (accessed 16 March 2013).