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Oil & Gas Price View - 2014 outlook, 2013 wrap


We have published a detailed outlook on our oil and gas price forecasts for 2014 and a review of 2013 (see Oil & Gas Price View - 2014 outlook, 2013 wrap, of 10 January). We maintain our USD 100/bbl Brent forecast for 2014, as we expect OPEC will be able to manage production to around 30mmb/d, mainly as a result of Saudi Arabia cutting output to accommodate rising production elsewhere within OPEC, primarily from Iraq. We believe that will prove consistent with our Brent price forecast, despite a record increase in non-OPEC production. We introduce our quarterly Brent forecast for 2014 and make minimal changes to the balance of our oil and gas price forecasts.

Brent price volatility fell to exceptionally low levels, despite a considerable degree of geopolitical tension, and eased downward YoY. The global oil burden fell just below the 5% mark, but remains elevated by historical standards. The year started strongly, driven by a sharp fall in OPEC production as Saudi Arabia over-tightened the market, in our view, before it began to ramp up production again. The summer saw a rise in geopolitical instability in the MENA region, in Egypt, in Syria and, more notably for oil markets, in Libya where production has collapsed. While these initially boosted Brent in late summer, adequate OPEC supplies and the rise in non-OPEC production kept the price in check, although a fall in OPEC production toward the end of the year could act as a precursor to a fairly robust start to 2014. Overall, we believe active supply management by Saudi Arabia was critical to the price outcome in 2013, and we expect it to be as important in 2014.

We maintain our Brent forecast for 2014 at USD 100/bbl, despite a likely drop in the call on OPEC crude to less than 30mmb/d, driven by a record increase in non-OPEC supply. Nevertheless, we believe that OPEC will continue to target USD 100/bbl oil and will endeavour to maintain production at around 30mmb/d in order to do so. We expect that Saudi Arabia will be willing and probably able to accommodate changes elsewhere within OPEC, notably a sharp increase in Iraqi production, as we demonstrate in a scenario analysis. The extent of the effort required by Saudi Arabia is likely to become increasingly apparent during the course of the year.

Brent averaged USD 108.70/bbl in 2013, down USD 2.97/bbl (-2.7%) YoY, and closed the year at USD 110.80/bbl. WTI averaged USD 98.05/bbl in 2013, up USD 3.89/bbl (+4.1%) YoY, and closed the year at USD 98.42/bbl. Urals averaged USD 107.74/bbl in 2013, down USD 2.73/bbl (-2.5%) YoY, and closed the year at USD 108.80/bbl. The UK’s National Balancing Point (NBP) gas price averaged USD 371/kcm (USD 10.5/mmbtu) in 2013, up 11.8% YoY (USD 39/kcm, USD 1.11/mmbtu), and closed at USD 399/ kcm (USD 11.30/mmbtu). The Henry Hub gas price averaged USD 132/kcm (USD 3.73/mmbtu) in 2013, up USD 32/kcm (USD 0.90/mmbtu, +31.9%) YoY, closing at USD 153/kcm (USD 4.34/mmbtu).

Colin Smith, Marc Jacouris
VTB Capital analyst

oil, gas

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