MIXED signals are creeping in. An air of uncertainty seems still ruling. With a number of variables in play, oil markets are in for considerable fluctuation throughout this New Year. Global shale output is on up. On the other hand, the IEA has recently raised its forecasts for global oil consumption amid the strongest US demand growth in a decade. It is now forecasting global oil demand growth of 1.2m b/d – highest level over the last few years – in 2014. From where the rising demand would be filled, remains a formidable issue for speculation. The Paris- based IEA believes that non-OPEC supply rise will more than cover the gain in global demand in 2014. Daily non-OPEC output will rise by 1.7 million as compared to the projected rise of 1.2 million bpd in consumption. With the energy world in the midst of a shale revolution, the US appears set to lead the gains as it taps shale reserves in North Dakota and Texas, the IEA said in a report. But output increases are not limited to non-OPEC producers only. As part of its long-term strategy, OPEC producer Iraq plans to export an average of 3.4 million barrels daily in 2014, Oil Minister Abdul Kareem Al-Luaibi said early in December. In November it exported 2.38 million bpd. Iran is also posturing to increase output to four million bpd if and indeed when international sanctions are eased. Libya also intends to reopen export terminals closed by protests. And in the meantime, while the speculation of a crude market meltdown has been hovering for at least a couple of years now, yet that has not been materializing, on one account or the other. For a third year in 2013, international oil prices have gone nowhere. Brent, the global marker, has averaged more than $108 a barrel in 2013 – like it did in 2012 and 2011 – as feared oversupply from the US shale revolution failed to materialize because of production setbacks in other parts of the world. However, some analysts are now underlining that 2014 will be the year in which rising output would finally overwhelm demand growth, sending prices lower. “The US shale revolution, coming on top of the maturation of deepwater production, paints a robust supply picture,” says Ed Morse, head of commodities research at Citi. Mr Morse also argues that stronger US economic growth may not translate neatly into more global demand for oil, as the US economy is less skewed towards energy intensive manufacturing and industry than China's. Citi expects Brent to average $98 a barrel in 2014, averaging $80 a barrel through 2020 and beyond. Brent averaged more than $108 a barrel in 2013 and $111.68 in 2012. A Bloomberg survey of last year's most-accurate oil forecasters produced a prediction of $105 a barrel in 2014 from $108.71 in 2013. Forecasters dubbed ‘most accurate' are now saying that Brent crude prices will weaken for a second year in 2014 as US output expands and threats to Middle East and North African supply ease. While this will be a second annual drop for Brent and the first consecutive retreat since 1998, prices are still about 39 percent higher than the average over the past decade they however, emphasized. “We're expecting a surplus,” said David Bouckhout, the senior commodity strategist at Toronto-Dominion Bank in Calgary, Canada who was jointly the most accurate forecaster last year. North American “supply growth is going to remain robust and cover the expected increase in demand. The biggest concern for 2014 on the supply side is going to be Iran, while Iraq is another producer that certainly wants to see its production grow.” Iran may be able to boost oil exports by 500,000 barrels a day following the November 24 agreement that eased some sanctions in exchange for a pause in the country's nuclear program, Bouckhout added. That might expand should Iran reach a wider deal with world powers, he said. The country shipped 850,000 barrels a day in November, according to the IEA. Deutsche Bank AG reduced its crude price forecasts for 2014 by about $10 a barrel from this year. The bank lowered its 2014 estimate for US West Texas Intermediate to $88.75 a barrel from $98.59 this year. “Rampant US oil supply growth and upside risks to Libyan and Iranian crude oil exports imply a bearish environment for global crude oil markets next year,” Michael Lewis, the bank's head of commodities research in London said while releasing the report. “We see the growing risk of an oil supply glut developing.” Others, however, argue supply will disappoint, providing a powerful prop for Brent. “The patterns of recent years are likely to repeat themselves because nothing has really changed,” says Michael Dei-Michei of JBC Energy, a consulting house which is forecasting an average Brent price of $110 a barrel next year. HSBC Global Research raised its long-term price assumptions for Brent crude oil but said it was not taking a “particularly positive” view because the global market looked adequately supplied. HSBC raised its Brent price estimate for 2014 to $100.00 per barrel from $90.00 and for 2015 to $95.00 from $91.00. Barclays expects non-OPEC supply growth to exceed global demand growth by about 500,000 barrels in 2014. But analyst Miswin Mahesh says this will only translate into modest downside pressure on crude prices because of uncertainty surrounding output in many OPEC countries. Oil demand may exceed analysts' expectations next year as the US economy strengthens, said Bjarne Schieldrop, the chief commodities analyst at SEB AB in Oslo. The global economy will expand 3.6 percent in 2014, from 2.9 percent in 2013, the International Monetary Fund said in a report in October. “Demand has clear upside potential,” SEB's Schieldrop said. “Oil prices should be set to stay around the $108 to $109 level seen this year, rather than set for a really bearish development.” A rather less vocal group of analysts, as per Grant Smith, say that while appearances have changed, the global oil market has not; supplies remain tight and oil prices are on the way up. In a note to clients, Oswald Clint's research group at Sanford Bernstein forecasts almost double Morse's oil price estimate—$158 a barrel in 2020. Bernstein's arguments, among others, are that the US surge will be less than many expect, that global demand will surpass supply growth, and that OPEC nations can't subsist at sub-$100-a-barrel and will cut production to hold that as a price bottom. Bernstein says prices this year will average $110. Crude oil forecasting is a dangerous pastime. It could be professionally hazardous too. Uncertainty seems to be the name of the game in 2014 too. Adrenaline would continue to run this year with a lot of excitement in store.
