Our Crude Oil price forecast 2013 – update
Crude oil, is one of the critical components to any kind of economic forecast. Naturally part of the reason for that, is that Crude is used in so many things – it makes up the transport costs on products we consume, as well as our own mobility, but also its use in heating, manufacturing, packaging and more. As such, it is a critically important when having a view on most trades.
Our Outrageous Predictions for 2013
Last year, in our Outrageous Predictions for 2013, we looked at expectations for Crude Oil – which at the time was around $88/barrel. We were looking at a lower price level, perhaps as low as the mid $70’s. So far, we have yet to see that materialise. Tension in the Middle East – primarily Syria – has provided enough unrest to keep the risk premium in crude, holding it stubbornly north of the $90/barrel level. And, to be fair, we have also been profiting from this, through several trades in both Woodside and Santos.
However, our outlook for the balance of this year remains around that $75-$77/barrel level. Before I go on, the caveat here, as always, when trading Crude Oil, is that the risk is always to the upside ie an act of terrorism, damaged production facility or unrest in a producing nation can send a shockwave higher, faster than you can yell Margin Call! Invariably, crude prices seldom fall as quickly, simply because huge gluts or spikes in supply rarely if ever happen, and demand is generally trending.
So why the bearish Crude oil forecast?
We are seeing a continued pattern of slower economic growth – while still positive – the trend has slowed considerable. In the case of China, the slowdown is now at a more sustainable level, which is a good thing, but throughout Europe the economic woes have continued to put the hand break on growth.
World’s largest Oil Consumer
Looking at the world’s largest oil consumer, the United States, there are major shifts occurring and these are likely to have an impact on the global crude game plan. For the first time in 6 decades, the United States was a net exporter of petroleum products in 2011. This is more related to refined products than production, but we shall get onto that, shortly.
New technology has enabled previously uneconomic, older oil fields to once again become commercial, with crude production now sitting at 21 year highs. This is a game changer, and reserve estimates for the US, mean that this may well be a sustained game changer with some tipping the US to become the World’s largest producer, by 2020.
Fracking (horizontal drilling into fractured oil deposits) being the big break through. This is not new technology – back in 2005, I was involved in the listing of Incremental Petroleum, which was undertaking such drilling work on previously uneconomic oil fields in Turkey, which proved a nice earner.
However, what this means, with opportunities to tap into previously uneconomic reserves, that new and cheap supply will be coming on line, and in sizeable volume.
A shift in demand
One of the other broader factors, is a shift in demand. Anyone who has travelled in the US, will recall the huge vehicles being roared around – the behemoth Ford 450 being one I recall from my numerous drives through New Mexico and Texas. However, the trend is increasingly toward smaller European/Asia styled cars. Smaller cars means more fuel efficiency – at least in the traditional automobile sector and one overlooked area are hybrids.
Hybrid Cars In Australia
Hybrid cars have yet to really get traction here in Australia – sure there are plenty of Prius taxis sneaking around, in the disturbingly silent fashion they do (pretty handy if you are arriving home later than you should be!) but these have yet to get into the mainstream. The extremely high cost of electricity here in Australia is not likely to assist, when it comes to electric cars either. Thank you Carbon Tax!
However, in the US there are now more than 2 million hybrid cars on the road, including over 1 million Prius! This figure is likely to gain further momentum too as hybrid and electric doesn’t mean slow and boring. The new Tesla S knocks out the 100kph mark in a very respectable 4.2 seconds – faster, quieter and almost certainly more reliable than my Aston Martin ever was!
But what do lower crude oil prices mean?
Obviously benefits at the bowser (again, something we rarely see in Australia unless you have your vouchers from Coles!) of lower crude oil prices flowing through to cheaper fuel. But more broadly, an increased supply led drop in crude oil prices to our target level, would be the equivalent of literally trillions of dollars in tax cuts, a natural and sustainable, alternative to the various QE and government driven support programs currently in play around the World.
If our view is wrong
And hey, at the end of the day – we are traders – so if our view is wrong, we will continue to trade what we see, as we have with Woodside and Santos – rather than simply predict and wait – why not enquire about access to our recommendations so that we can let you know when and how we will be making our next move in the markets, live.