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A Canadian Natural Resources pump jack in Alberta (TODD KOROL/Todd Korol/Reuters)
A Canadian Natural Resources pump jack in Alberta (TODD KOROL/Todd Korol/Reuters)

Market outlook

Where analysts see oil prices in 2012 Add to ...

Brent crude will average $105 (U.S.) a barrel next year, not far below this year’s record high average near $111, a Reuters poll found.

A quarter of analysts have reduced their forecasts since a similar poll a month ago because of worries about the impact of the euro zone debt crisis on economic growth.

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But respondents think oil will remain expensive because of worries about supplies from producers Iraq and Kazakhstan and the possibility that tighter sanctions could curb Iranian oil sales. Low crude stocks and strong diesel demand also are supporting prices.

“We expect a mild recession across the OECD next year to put a damper on demand and consequently prices,” David Wech from Vienna-based consultants JBC Energy said. “Nevertheless, the risk to oil prices is definitely on the upside given a still troubled geopolitical environment.”

Downside risks include EU debt, the return of Libyan crude output and weak global demand for gasoline and naphtha.

The monthly poll of 32 analysts and consultants put the average forecast for Brent crude futures for 2012 at $105.20 per barrel, down from a year-to-date average price in 2011 of $110.90. The new consensus is $1.80 lower than the $107 a barrel recorded in November’s poll. Brent traded just above $107 on Wednesday.

The poll found that U.S. light crude oil would average $97.00 per barrel, a revision up from $96.50 a barrel in November’s poll. U.S. crude has averaged $94.90 a barrel so far this year.

While 22 of the 32 analysts kept Brent forecasts this month unchanged, seven respondents cut projections.

“We expect further price weakness in 2012 due to a combination of weak global demand, fading supply constraints, low risk appetite and continued recovery in the US dollar,” said Julian Jessop at Capital Economics.

Both OPEC and the International Energy Agency cut their demand growth forecast in December on worries that the economic outlook was weakening.

OPEC said that austerity measures in the euro zone and other developed economies risked denting consumption in India and China.

“A relatively high supply and a lower than expected demand means prices will go further down,” wrote LBBW’s Frank Schallenberger, who has a target for Brent at $90 a barrel.

Brent peaked in April at $127.02 a barrel as unrest in Libya cut supplies from the OPEC member, short of August 2008’s all-tine high of $147.50.

Prices are at risk on the upside from worries about the political situation in Kazakhstan, Iraq and Iran.

In Kazakhstan, hundreds of oil workers in the western oil-producing region of Zhanaozen protested after at least 15 people were killed in riots, piling pressure on President Nursultan Nazarbayev to relax his rigid authoritarian system.

Iraq has become a focus of interest on worries that sectarian strife between the country’s Shi’ite, Sunni and Kurdish communities could flare up after the departure of U.S. troops. Within hours of the last troops pulling out of the country, Shi’ite Prime Minister Nuri al-Maliki issued an arrest warrant for Sunni Muslim Vice-President Tareq al-Hashemi.

“Iraq in particular is a wildcard as the withdrawal of US troops may lead to an uptick in sabotage attacks on oil infrastructure,” JBC’s Wech added.

Iran is a risk as the West considers whether to apply further sanctions with a decision on an EU embargo expected in January. The U.S. congress has sanctioned Iran’s Central Bank.

“Tensions with Iran provide the obvious upside risk, but the West is very unlikely to risk another oil price spike especially when the economic outlook is already so poor,” Jessop said.

BRENT-U.S. SPREAD

The poll found that the premium for Brent over U.S. crude would average $8.20 a barrel next year, down sharply from an average of $15.7 in the year to date for 2011. The spread hit a record $28.10 in October and stood at just over $9 in favour of Brent on Wednesday.

The discount of U.S. crude to rival benchmark Brent is expected to narrow as the reversal of the U.S. Seaway pipeline gets underway and as the return of Libyan crude weighs on the European benchmark.

The reversal of the direction of oil flows on Seaway is expected from April next year, and will see barrels of crude move from the oversupplied Midwest storage tanks at Cushing to the U.S. Gulf Coast refineries.

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