Hedging specialist
A/S Global Risk Management has forecast that the market will see downward sloping prices and high volatility during the first half of 2012 and increasing prices during the second half of the year.
In the company's annual report for 2012 entitled "
The Oil Market - 2012 Outlook", Global Risk Management said: "Even though fundamentals have improved, the increased geo-political risk from Iran is countering that effect. We take a neutral stance on the financials as the inflation pressure is fading due to lower activity in the Euro zone and a higher US dollar."
Commenting on geopolitical factors, the report said: "Dark horses are mainly the Iranian threat to close the Strait of Hormuz and the risk of unrest in both Kazakhstan and Nigeria. Should the situation in the Gulf region get out of control, we could see Brent oil prices at $150 and above during 2012."
The Global Oil Strength Index (GOSI)
The Global Oil Strength Index, or GOSI, was introduced by Global Risk in 2010. The GOSI is a single number between 0 and 100 that signals Global Risk Management’s expectations for the development of oil prices. A reading below 50 indicates a declining trend and above 50 an increasing trend.
Global Risk calculates the GOSI by assigning a strength rating or index for each of three factors (Fundamentals, Financials and Geopoliticals) and then calculating a weigthed average based on the three strength ratings.
Fundamentals: - Rating: 58 (-3 vs Oct 2011) - Fundamentals are returning to normal with the Libyan crude resuming production. There is still scarcity in especially the distillates market, which keep fundamentals bullish.
Financials: - Rating: 50 (-6 vs Oct 2011) - Lower growth prospects in Europe and a higher US Dollar is lowering inflation outlook, which puts pressure on this indicator, despite some opposing effects from higher US growth.
Geopoliticals - Rating: 80 (+20 vs Oct 2011) - Iran will have a large impact in the oil market with its threats of closing the Strait of Hormuz. Will it end with a war or an internal implosion or status quo - no one knows, but all can be bullish for oil.
GOSI - Rating: 59 (same vs Oct 2011) - GOSI is unchanged at a bullish rating. Even though fundamentals have improved the increased geopolitical risk from Iran is countering that effect.
Average price forecasts:
Brent Crude (US$ per barrel)
Q1 2012 - 109
Q2 2012 - 107
Q3 2012 - 113
Q4 2012 - 115
Q1 2013 - 117
Q2 2013 - 119
Q3 2013 - 121
380cst Singapore Cargoes (US$ per tonne)
Q1 2012 - 640
Q2 2012 - 623
Q3 2012 - 657
Q4 2012 - 667
Q1 2013 - 677
Q2 2013 - 688
Q3 2013 - 697
3.5% Rotterdam Barges (US$ per tonne)
Q1 2012 - 611
Q2 2012 - 595
Q3 2012 - 629
Q4 2012 - 639
Q1 2013 - 650
Q2 2013 - 660
Q3 2013 - 669
0.1% CIF NWE Cargoes (US$ per tonne)
Q1 2012 - 942
Q2 2012 - 923
Q3 2012 - 968
Q4 2012 - 981
Q1 2013 - 993
Q2 2013 - 1003
Q3 2013 - 1013
0.5% Singapore Gasoil (US$ per tonne)
Q1 2012 - 933
Q2 2012 - 913
Q3 2012 - 956
Q4 2012 - 969
Q1 2013 - 983
Q2 2013 - 996
Q3 2013 - 1008
N2 Heating Oil (US$ per tonne)
Q1 2012 - 908
Q2 2012 - 887
Q3 2012 - 934
Q4 2012 - 955
Q1 2013 - 961
Q2 2013 - 951
Q3 2013 - 956
3% US Gulf Waterborne (US$ per tonne)
Q1 2012 - 622
Q2 2012 - 607
Q3 2012 - 642
Q4 2012 - 652
Q1 2013 - 662
Q2 2013 - 672
Q3 2013 - 681
Forecast Summary
In its forecast summary, Global Risk said: "The forecast for 2012 is set for downward sloping prices in the beginning of 2012 and increasing prices in the end. However, in between we expect high volatility as - even though some Libyan oil production is back - a new potential risk is building with Iran threatening to close the Strait of Hormuz. On the fundamental side, lower sulphur emission rules for the US will have an impact."