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

In 2012 all the energy swans are covered in crude


“The potential huge supplies of natural gas from shale formations will keep any price rallies in check in 2012,” says Mike Zarembski, manager of futures trading at optionsXpress. He adds that weather events such as hurricanes in the Gulf of Mexico that previously would send natural gas prices soaring have become a smaller factor in gas prices because inland gas supplies have increased their share of the market since 2008.

“Oil prices look to remain volatile in 2012, especially with tensions remaining high with Iran and the potential for further attacks on the oil infrastructure in Nigeria,” Zarembski says. “Natural gas prices should remain subdued unless we start to see much stronger industrial demand to absorb the huge gas surpluses we should have at the start of 2012.”

Global supply and demand conditions for oil ended 2011 in balance, according to Patricia Mohr, economics and commodity market specialist for Scotiabank Group. She noted that OPEC, at a December meeting, agreed to maintain output near current levels, slightly higher than projected demand, and scheduled another meeting in June. Mohr says WTI oil prices should average $95-$100 per barrel in 2012 compared to $95 in 2011 and $79.53 in 2010.

Other analysts and traders forecast average prices as high as $110 for the coming year, but most noted that fluctuations far above or below those ranges could be possible in such scenarios as a breakup of the European Union or a military conflict around the Strait of Hormuz, which links the Gulf of Oman and the Persian Gulf.

What many see as receding prospects for a recession affecting North America also will come into play. “Oil prices are going to be most related to economic growth,” says Keith Springer, president of Springer Financial Advisors. “If it looks like we’re coming out of recession and we have a true recovery, you’ll see higher oil prices. If not, you’ll see lower prices. We’re getting to the point where we’re due to come out of the recession. We’re either going to double dip or recover.”

But Springer says the world’s economy and demand levels will be more critical to energy prices in the coming year. “It’s going to be the whole world’s economy and not just the U.S.,” he says. “The U.S. has tremendous demand, but China has tremendous demand, too. I don’t believe that [the U.S. is central]. There is enough supply and we’re finding supply all the time. Oil spikes when [a] recovery is expected.”

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