Oil’s third year over $100 looms on supply risk

Brent-WTI Gap

Goldman Sachs Group Inc. said Dec. 20 the spread between the two grades will narrows to $14 a barrel within three months, abandoning a prediction it would end the year at $4. The median of analyst forecasts compiled by Bloomberg are for the difference to narrow to $14.10, as flows accelerate through the Seaway pipeline, which connects Cushing with the Gulf Coast, the location of 50 percent of the nation’s refining capacity.

While the domestic surplus has lowered WTI, which can’t be exported without a government permit, the value of Brent, which is shipped from the North Sea to ports around the world, has been buoyed by everything from the crisis in the Middle East to expanding demand in Asia.

A “reacceleration already appears to be underway in China,” analysts at Morgan Stanley said in a report on Dec. 5. The nation’s crude processing jumped 9.1 percent in November to a record 10.2 million barrels a day, the National Bureau of Statistics in Beijing said Dec. 9.

“The key catalyst for the rise in oil prices we anticipate in the second half of the year will be the economic comeback in China,” Axel Herlinghaus, a senior analyst at DZ Bank AG in Frankfurt, said in a report e-mailed on Dec. 19. Brent will climb to $120 a barrel next year, he said.

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