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Oil prices soften on weak global demand forecast

The tug-of-war between weak demand, economic fragility and geopolitical tension in the Middle East shaped oil prices throughout October

In London, ICE Brent futures fluctuated within a fairly narrow $7/b range, averaging around $110/b, as global economic concerns weighed on prices, counteracting the effect of escalating tensions in the Middle East.

The International Energy Agency (IEA) lowered its estimates for global oil demand growth to 89.7 million b/d, down by 700,000 b/d for 2012 based on sluggish economic growth forecasts. The International Monetary Fund also decreased its forecast of global economic growth to 3.3% in 2012, and 3.6% in 2013. This is down from a previous estimate of 3.5% for this year and 3.9% in 2013.

The IEA maintained its 2013 oil demand outlook at 90.5m b/d. European refineries coming out of their autumn maintenance season also weighed on prices as supply increased. And in the US, one other factor adding support to oil prices, however, has been the softer US dollar versus the euro, alongside delays in the restart of the North Sea Buzzard oilfield.

At the beginning of October, WTI fell to around $88/b, its lowest level since August, as increased supply, particularly of unconventional oil and gas, weighed on fundamentals. WTI then recovered some ground towards the end of the month, trading in a fairly narrow range between $90-92/b, significantly reducing Brent’s premium to WTI.

Standard Bank said that “high US inventory levels and demand destruction” were weighing on WTI fundamentals although there was some support from a firming US economy and the temporary shutdown of the Keystone XL Pipeline, which takes Canadian crude into the US.

Figure 1: Dated Brent/North Sea Dated crude
Figure 1: Dated Brent/North Sea Dated crude
Figure 2: Crude oil prices, 2011/12
Figure 2: Crude oil prices, 2011/12

 

Figure 3: Refined product prices, 2011/12
Figure 3: Refined product prices, 2011/12
Figure 5: Natural gas prices, 2011/12
Figure 5: Natural gas prices, 2011/12
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