LONDON (Commodity Online): While the oil market has proved to be relatively resilient to the latest phase of concern about macroeconomic tail outcomes, and particularly potential discontinuities from sovereign debt outcomes, that macroeconomic fear is still holding oil prices down and largely driving the volatility in daily movement, said Barclays Capital in a research note.
January WTI settled $1.09 higher at $98.01/bbl while January Brent ended $2.15 at $109.03/bbl. On the fundamentals themselves, with Libya making a return to the market and with the acute period of North Sea maintenance over, together with slower demand growth, the extreme tightness in the oil picture is most definitely easing, Bank added.
However, simultaneously, there have been a series of new or enhanced geopolitical risks for the oil market, which is already operating at a high upstream capacity utilisation rate at a time of tight physical markets.
As a result, beyond overall near-term weakness, Bank would expect prices to remain well supported around and above $100/bbl, especially given that key producers are likely to be defending prices at close to the $100 level, due to their rising budgetary requirements, while the rising geopolitical risks skews the likelihood of price spikes to the upside. Global oil demand growth is being led by diesel, with diesel markets remaining extremely tight on a global basis.
“The current dynamic of international trade and international manufacturing activity remain supportive for diesel, with motorists now losing their role as the key marginal determinant of demand. That is another trend we would expect to see continuing into next year. However, given the ample refining capacity available, we would not expect a repeat of the 2008 price spike, as higher prices and short-term tightness gets reflected through higher refinery throughput,” Barclays concluded.
