Expectations of an improving economy and bullish supply data have strengthened oil prices to around $95 per barrel. Crude’s recent run has been spurred by the Federal Reserve’s measured Taper announcement, based on assertion that the U.S. economy was strong enough.
This has fueled hopes for robust fuel and energy demand in the world’s biggest oil consumer. The bullish momentum was further propelled by positive revision to third quarter GDP numbers and continued decline in U.S. supplies.
Partly offsetting this favorable view has been a spike in domestic production — now at their highest levels since 1988 – and suggestions of increase in Libyan oil exports following months of political turmoil.
The immediate outlook for oil, however, remains positive given the commodity’s constrained supply picture. In particular, while the Western economies exhibit sluggish growth prospects, global oil consumption is expected to get a boost from sustained strength in China, the Middle East, Central and South America that continue to expand at a healthy rate. (Read: 3 Commodity ETFs still looking strong)
According to the Energy Information Administration (EIA), which provides official energy statistics from the U.S. Government, world crude consumption grew by an estimated 1.1 million barrels per day in 2013 to a record-high level of 90.3 million barrels per day.
The agency, in its most recent Short-Term Energy Outlook, said that it expects global oil demand growth by another 1.2 million barrels per day in 2014. Importantly, EIA’s latest report assumes that world supply is also likely to go up by 1.2 million barrels per day in 2014.
In our view, crude prices in the first half of 2014 are likely to exhibit a sideways-to-bearish trend, trading in the $90-$100 per barrel range. As North American supply remains strong and the groundbreaking agreement with Iran makes it easier for the country to sell the commodity, we are likely to experience a pressure in the price of a barrel of oil.
Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. The success of ‘shale gas’ – natural gas trapped within dense sedimentary rock formations or shale formations — has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world’s largest energy consumer.