“It is a proxy war,” said Paul Horsnell, the head of commodities research at Barclays in London, who expects Brent to average $125 a barrel next year, the highest forecast tracked by Bloomberg. “It’s operating down the same fault lines that go right through the Middle East, and spilling out into every country that it borders onto.”
Brent advanced 1.5 percent in the year through Dec. 21, to $108.97 a barrel on the London-based ICE Futures Europe. The North Sea crude rallied 22 percent in 2010 and 13 percent last year, when it averaged $110.91 a barrel.
Global oil demand will expand by 1 percent next year to 90.5 million barrels a day, versus growth of 0.9 percent in 2012, the IEA predicted in its report. China will account for about 30 percent of the expansion.
OPEC decided on Dec. 12 to leave its official production target unchanged. The group is expected to earn more than $1 trillion in export revenue this year, according to the U.S. Energy Department.
Next year’s growth in demand will be met by new supply from outside OPEC, according to Citigroup Inc., which forecasts that Brent will slip to average $99 a barrel next year, the third- lowest of the 30 predictions tracked by Bloomberg.
“Risks are overwhelmingly to the downside,” said Ed Morse, Citigroup’s global head of commodities research in New York, who estimates that current prices are high enough to act as a break on economic expansion.
About 60 percent of the 900,000 barrel-a-day increase in non-OPEC supply in 2013 will come from North America, Citigroup estimates, as hydraulic fracturing, or fracking, allow the extraction of shale oil from rock formations in North Dakota, Oklahoma and Texas.
The boom in U.S. production has triggered a 10.3 percent drop this year in West Texas Intermediate crude, the nation’s benchmark grade. WTI has averaged $17.44 a barrel less than Brent this year, a record discount in annual terms, as new output floods into tanks at the U.S. storage hub in Cushing, Oklahoma. The price gap was $20.31 on Dec. 21.