From the February 01, 2012 issue of Futures Magazine • Subscribe!

In 2012 all the energy swans are covered in crude

Markets

The volatility that marked energy markets over the past year is almost guaranteed to continue in 2012. Geopolitical factors, such as Europe’s financial crisis and conflicts with Iran and other regions, make long-range forecasts hard to pin down.

“The black swans are flocking together,” says Phil Flynn, senior energy analyst at PFGBest. “There are so many black swans out there, they’ve become the new white swans. That’s the problem going into 2012 — we’re going to need a new term. There are so many issues that really could have an impact on oil prices.”

Flynn points out that a number of geopolitical hotspots or the ongoing European debt crisis could create a black swan type of event.

Other factors affecting the outlook for oil and natural gas products include the possible weakening of demand from China and India, the continuing possibility of an economic downturn in North America and expanding supplies, particularly for natural gas.

Natural gas working inventories ended November 2011 at a record high for that date. According to the U.S. Energy Information Administration (EIA), they are about 1% above a year earlier. Projected Henry Hub natural gas spot prices averaging $4.02 per million British thermal units (MMBtu) in 2011 were 37¢ per MMBtu lower than the 2010 average and the EIA expects that spot prices will continue to decline in 2012, averaging $3.70 (see “Feeling gassy,” below).

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