Macquarie Research:: Boosting our oil price forecast Going for new highs in 2012-13

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

Boosting our oil price forecast
Going for new highs in 2012-13
Raising our price deck 17%-23% through 2013
Our fundamentals view drives our forecast for Brent futures quarterly averages, off of
which we peg targets for crude oil benchmarks WTI, Tapis and Dubai. First we mark
4Q2010 to market, with a Brent average of US$87.45 per barrel coming in 7% above
our forecast and delivering an US$80.30 annual average, the second highest ever.
We now expect a 21% rise in oil prices this year, with Brent averaging US$97. That
is 17% higher than our previous target of US$83. In our view, Brent futures prices
then rise 19% next year to US$116 (23% higher than our previous target) and by
another 4% to US$120 in 2013 (14% higher than before). We also raised our long
run target 6% to US$88 on already apparent cost inflation.

Price forecasts for the other benchmarks mostly move in line with Brent, except that
we are now projecting discounts for WTI through 2013 and slightly wider quality
spreads for Tapis and Dubai than before.
Why now?
It’s been clear for months that fundamentals began to tighten meaningfully again in
2H2010. By now, however, we have much higher confidence that near term upside
risk balances the still very real risk that any of a string of macro issues could derail
global growth in the shorter term. The key fundamentals driver of our newly bullish
price outlook is widespread sustainably, growing oil demand. Balances have become
less loose. We have seen the odd supply driven spike, and backwardation. Next,
markets will price higher capacity utilization and eventually episodic scarcity.
Spare capacity can slow price inflation, but only until next year
From a starting point in the mid US$90s for Brent futures, we project that oil prices
reach a near term high well above US$100/b in the second quarter. Extra supplies
from Opec’s key owner of spare capacity, Saudi Arabia, would then moderate prices
in the second half of 2011. As spare capacity shrinks further and refiner utilization
rises, prices would resume their upward march next year, setting a quarterly record
high near US$130/b in 2Q2013 before direct and indirect demand responses can
begin to try to reverse trends.