The key difference Barclays sees between oil and most other energy markets is supply, where the challenge is replacing declining oil production. Demand, by contrast, responds to economic weakness to similar degrees across the energy spectrum.
And with 3Q12 looking as if it will see a very significant tightening of the oil market, Barclays' key Global Energy Outlook recommendation is to stay leveraged to oil and to oil-biased equities and credits.
“Beyond our quarterly and annual oil price forecasts, we map the longer-term supply/demand picture, and the signals here are stark. Oil supply from existing fields is falling by close to 4m bls/d per year due to natural decline; global demand is rising by more than 1m bls/d each year, even in the current weak environment.” the bank said.
“Hence, the supply gap that needs to be filled each year from new fields is more than 5m bls/d. This presents a material challenge for the energy industry. While this long-term supply squeeze may have been less apparent in the quarter just past, 3Q12 looks as if it will see a significant tightening of the oil market, with a 2m bls/d upswing in demand and falls in both OPEC and non-OPEC supply.” the Bank added in a special report.
To this one can add minimal spare capacity and heightened geopolitical tensions in several regions. A release of US strategic reserves would provide only a slight and temporary respite.
“Thus, we continue to have strong oil price conviction, and our Brent forecast for 2013 is $125/bl. For the longer term, we expect prices to follow an inexorable, if volatile rise to above $180/bl before the decade closes.” Barclays predicted.
Source: Barclays Research
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