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FY13 Brent forecast unchanged at USD 106/bbl


In our regular monthly review, we leave our current FY13 Brent forecast unchanged at USD 106/bbl. However, given the steepness of the fall in the Brent price at the start of April and our expectation that the price is likely to remain under pressure, we have reprofiled our quarterly forecast. We now expect Brent to average USD 102/bbl for 2Q13 and to end the quarter at USD 102/bbl, down USD 5/bbl and down USD 2/bbl respectively on our previous forecasts. We leave our other macro forecasts unchanged for FY13 and prospectively.

Having slid from the USD 118/bbl level at mid-March, Brent showed signs of stabilising at around the USD 110/bbl level toward the end of the month. However the start of April brought another sharp sell-off which saw Brent touch the USD 97/bbl level in mid-April. The Brent price has since recovered and now appears to be trying to find a level around the USD 100/bbl mark amid mixed to weak global economic news and continued pressure in other commodity markets as well as a drop in managed money net longs in Brent.

The supply/demand data continues to suggest that the oil market remains noticeably over-supplied and initial estimates of OPEC production indicate that April production increased MoM, consistent with our expectations and likely to exacerbate the pressure on the Brent price, in our view.

YTD, Brent has averaged USD 110/bbl and our unchanged USD 106/bbl forecast implies an average for the balance of the year of just over USD 103/bbl. However, given the sharpness in the sell-off at the beginning of April, we have reprofiled our quarterly estimates. We note that our forecast incorporates comparatively low volatility so the risk of a considerably sharper sell-off than we are currently forecasting remains a distinct possibility, we believe, although that would not necessarily impact our FY13 forecast.

OPEC is due to meet on 31 May and we expect that it could have a larger than usual impact on the market which might need to see a credible intention on the part of OPEC to cut production from current levels if further Brent price weakness is to be avoided, we believe.

In order to provide tight coordination between our published view on energy prices and the inputs into the near-term of other VTB Capital Research teams, particularly our economists, we mark our energy prices to market on a monthly basis with a particular focus on our Brent forecast. 

Colin Smith, Marc Jacouris
VTB Capital analyst

dollar, OPEC, IEA

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