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Oil In 2013: Boom Or Bust?

Oil in 2013: Boom or Bust?

As yet another year of market volatility draws to close, investors are seeking guidance as to what to expect heading into 2013. The oil market has been the definition of unsettled during 2012, and uncertainty is set to continue over the coming 12 months.

As is the case with most commodities, oil forecasts are mixed leading into what is likely to be a pivotal period for the market as a whole. A potential economic slowdown, combined with the fact that US oil production is reaching its highest levels in well over a decade, means that investors could find themselves in a major headwind in relation to oil prices.

Further, many believe that movement toward US energy independence, cleaner energy and slowing economic growth could suggest that longer-term oil prices are likely to trend downwards.

Price crash “unlikely”

A price crash in 2013 is unlikely as geopolitical concerns should help support the market, according to analysts polled by Reuters. The same analysts added that stagnant economic growth and increasing crude supplies are expected to gradually draw oil prices lower.

The monthly survey forecasts that North Sea Brent crude oil will average $108 per barrel in 2013, down from an average of $111.71 so far this year.

"While geopolitical concerns in the Middle East still remain at the forefront, concerns about the United States going over the 'fiscal cliff' and the euro area potentially slipping back into recession could have more dire consequences for crude oil demand for the first half of 2013," said Gain Capital Group (NYSE:GCAP) analyst Chris Tevere.

Barclays: Geopolitical upheaval could shift prices

Meanwhile, Barclays (LSE:BARC) oil analysts noted that any significant shift in prices will require either a substantial change in oil-balance fundamentals or significant geopolitical upheaval.

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