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Oil In 2013: Boom Or Bust?

“While there are other likely areas of interest for the oil market in 2013, in our view the main nexus for the transmission into oil prices is likely to be the Middle East, with the spiralling situations in Syria and Iraq layered in on top of the core issue of Iran's external relations,” said Barclays in a report.

The institution confirmed that it is maintaining its 2013 Brent forecast of $125 per barrel — the same level it has predicted over the past 21 months.

WTI discount to Brent expected to fall

The US Energy Information Administration (EIA) predicts that Brent and WTI crude oil spot prices will average $104 per barrel and $88 per barrel, respectively, in 2013. The WTI discount to Brent crude oil, which averaged $23 per barrel in November 2012, is expected to fall to an average of $11 per barrel by the fourth quarter of 2013.

The EIA notes that this forecast rests on the assumption that US real gross domestic product (GDP) will grow by 2.1 percent in 2012 and 1.8 percent in 2013. It is also dependent on world-oil-consumption-weighted real GDP growing by 2.7 percent in 2012 and 2.4 percent in 2013.

Interestingly, the EIA also expects US domestic crude oil production to increase to 7.1 million barrels per day in 2013 — the highest annual average rate of production since 1992.

Supply issues a main focus

In comments to Forbes, Peter Kiernan, lead energy analyst for the Economist Intelligence Unit, said that even fast-growing emerging markets and non-Organisation for Economic Co-operation and Development (OECD) nations will experience poor economic performance in 2013.

“We see an easing of oil prices [in 2013] as demand remains weak,” he said, noting, “[still], the generally secular trend of new finds becoming more expensive to extract" could keep a floor under prices.

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