{"id":59372,"date":"2012-01-18T10:23:12","date_gmt":"2012-01-17T23:23:12","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/01\/18\/upward-pressure-to-remain-on-brent-crude-in-2012\/"},"modified":"2012-01-18T10:23:12","modified_gmt":"2012-01-17T23:23:12","slug":"upward-pressure-to-remain-on-brent-crude-in-2012","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/01\/18\/upward-pressure-to-remain-on-brent-crude-in-2012\/","title":{"rendered":"Upward Pressure To Remain On Brent Crude In 2012"},"content":{"rendered":"

\n\tBy David Fessler<\/span>, Investment U Senior Analyst
\n\tMonday, January 16, 2011<\/p>\n

\n\tOil prices have traded off a few dollars from their recent highs. The factors that will keep Brent above $100 a barrel for 2012 are the same ones that kept it above $100 all of last year.<\/p>\n

\n\tTake a look at the graph below, courtesy of the Energy Information Administration.<\/p>\n

\n\t\"\"<\/p>\n

\n\tBrent spot prices averaged $111.26 a barrel for 2011. That was the first time in the history of oil that Brent averaged over $100 a barrel for an entire year.<\/p>\n

\n\tWest Texas Intermediate (WTI<\/span>) averaged $94.87 a barrel, up $15 a barrel from 2010. WTI<\/span> pricing reflected a discount to Brent based on supply constrains emanating from the Cushing, Oklahoma storage depot.<\/p>\n

\n\tWhat’s Going to Keep Crude High in 2012?<\/p>\n

\n\tLet’s start with the Arab Spring that’s already turned into the Arab Year. If Iran goes ballistic (no pun intended) and Iraq comes apart at the seams, it could turn into the Arab Decade.<\/p>\n

\n\tAny sudden supply loss resulting from the closing of the Straight of Hormuz<\/span> will send prices soaring. Even if nothing happens, prices will stay high until the standoff settles down.<\/p>\n

\n\tNow let’s talk about demand. In the face of all the unrest that threatens 17 million barrels per day of world supply, we have increasing demand. As I write this, China is negotiating with Iran for cheaper prices on oil.<\/p>\n

\n\tThe country gets about 11% of its oil from Iran, and now it can get it cheaper, since its oil is effectively isolated from the rest of the world. The boycott takes Iran’s 2.6 million barrels per day off the world’s supply.<\/p>\n

\n\tBut China, India and the Middle East all experienced increasing demand for crude in 2011. During the first six months of last year, crude demand for countries not part of the Organization for Economic Cooperation and Development (OECD) saw demand increase 4%.<\/p>\n

\n\tEven with declining OECD demand, overall world demand for crude increased by 1.2% in 2011. That growth will continue in 2012, keeping upward pressure on prices.<\/p>\n

\n\tThe third factor keeping crude prices high this year will be continued transportation bottlenecks. The giant Cushing Oklahoma crude storage facility is capacity limited to get crude out to Gulf Coast refineries.<\/p>\n

\n\tThe reversal of the Seaway Pipeline this June will partially alleviate this. The real problem is that crude production is ramping in Alberta’s oil sands, and North Dakota (the Bakken<\/span>) and Texas’ (Eagle Ford) shale plays.<\/p>\n

\n\tMore oil is flowing into Cushing than can flow out. The facility is adding storage at a frenetic pace, and should have the capability to store an additional three million barrels later this year.<\/p>\n

\n\tThe lack of access to West Texas Intermediate (the Cushing benchmark) caused it to trade at a significant discount to Brent last year. In September, that discount was nearly $30 per barrel.<\/p>\n

\n\tYou can see the price of the two benchmarks in the graph below.<\/p>\n

\n\t\"\"<\/p>\n

\n\tRight now the spread is close to $10 a barrel, which is wide by historical standards. I expect that to continue to remain in the $10 to $20 per barrel range, since there’s little that will improve the accessibility of WTI<\/span> in the short term.<\/p>\n

\n\tThe bottom line is this: Don’t expect oil prices to drop. Increasing demand and geopolitical unrest will keep Brent crude prices above $100 for a second year in a row.<\/p>\n

\n\tGood Investing,<\/p>\n

\n\tDavid Fessler<\/span><\/p>\n

\n\tReprinted with permission of the publisher. The above story can be read on the website www.investmentU.com. The direct link is: http:\/\/www.investmentu.com\/2012\/January\/upward-pressure-to-remain-on-brent-crude-in-2012.html<\/p>\n

\n\tNothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.<\/p>\n

\n\tViews expressed are not FNArena's<\/span> (see our disclaimer).<\/p>\n","protected":false},"excerpt":{"rendered":"

Investment U’s senior analyst David Fessler explains why Brent oil prices are likely to average above US$100\/bbl this year.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[24],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59372"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=59372"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/59372\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=59372"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=59372"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=59372"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}