We have published our first monthly update of our energy prices forecasts. In light of the firmer spot price at the end of March than we expected, we tilt our 2Q13 average Brent forecast to USD 107/bbl (+USD 3/bbl), and the FY13 to USD 106/bbl (+USD1/bbl). We continue to see Brent at USD 100/bbl at YE13, which remains our long-term price assumption.
We are introducing monthly mark-to-market updates to our Brent forecasts in order to provide tighter coordination between our published views on energy prices and the inputs into the near-term of other VTB Capital Research teams, particularly our economists.
In our first update under this new policy, we incorporate actuals for March and a minor re-profiling of our forecast to allow for a 1Q13 PE price outcome some USD 3/bbl above our forecast and are increasing our FY13 Brent forecast USD 1/bbl to USD 106/bbl. We are also revising our European gas price forecasts to reflect the updated Brent forecast and amending our WTI forecast for the actual 1Q13 outcome, together with the change in shape of the Brent-WTI futures spread.
The supply/demand data continues to suggest that the market is significantly oversupplied and with OPEC production beginning to pick up again, following the sharp drop in 4Q12.
In our assessment, the immediate outlook is for the level of over-supply to increase, given seasonal demand weakness, with OPEC production most likely flat to up and with a reasonable prospect of an initial re-start in production from South Sudan. A further round of high level nuclear negotiations is due to start on 5 April between P5+1 and Iran, and North Korea’s diplomatic discourse is even more blood-curdling than usual. However, in our view, near-term price support from geopolitical issues looks likely to be fairly stable. With the crude inventory data that we have already at high levels, we continue to expect the near-term price risks for Brent to lie to the downside, with the Brent average now expected at USD107/bbl in 2Q13 and USD101/bbl in 3Q13.