December 2, 2012

Why WTI Crude Oil will Fall to $65 in 2013

Why WTI Crude Oil will Fall to $65 in 2013. Current WTI price - $88.91.

EconMatters on why crude oil prices will fall more in 2013.

Lower Demand from US, Europe, Japan, China. 
China has infrastructure and inflation constraints that hamper growth levels higher than 7% going forward, and real growth may be much less than reported. This economic reality is priced into the Chinese stock market, which has had an abysmal year.

In regard to Japan, they are about to have another leadership change, the 7th one in as many years, and this economy is in a state of perpetual deflationary decline, which has lasted for the last twenty years. So despite the new leadership change, Japan has major demographic and anti-competitive businesses constraints that auger more of the same for 2013.
Higher Supply 
Well, we are finally starting to see the results of the increased capital investments, and just like Shale Natural Gas, these projects once they get going stay online, even as prices drop substantially. Expect the same for Oil, as frankly, there just aren`t a lot of areas where you can make the kind of margins that are attainable in the Oil market. It is a good business to be in versus many other industries vying for capital resources.
Crude Oil Glut in US 
But here is the kicker, on September 30, 2011 Cushing had just under 30 million barrels in storage, as of last week Cushing has 46 million barrels stored at this location, this is an increase of 16 million barrels in one year, if we have a repeat in 2013, which all signs point to as the trend is getting stronger not weaker, than Cushing will be running out of working storage capacity of just over 60 million barrels. I am sure Cushing is building more workable storage capacity as we speak, but at some level what is the point, 2013 is when WTI starts really pricing in some of this supply glut that comes from increased US and Canadian production.
Plus increasing Libyan, Iraqi oil supplies.

Need for Revenue at OPEC Producers i.e. they will keep producing and selling oil at high rates.

This will also affect Brent Crude Oil prices – which will fall to $85 (currently at $111.23).

Economics -> Lower crude oil prices in 2013.

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