According to market observers, Brent crude prices which are working as the benchmark for half the world’s oil will weaken for a second year in 2014. This is expected to happen as U.S. output will be expanding to a great extent. The signals for enhanced oil output came this year itself. Then there is another threat from the Middle East and North African countries that supply the major portion of oil to the world.
Some estimates say that prices will average $105 a barrel in 2014; thus, it is lower than $108.71 in 2013. The decline is though not unexpected given the market’s behavior this year so far, observers believe that it is definitely leaving out the investors as they are not so optimistic about it.
Global Supply to Increase to a Great Extent
As has been admitted by market observers global supply is expanding thanks to the exceeding production from the U.S., which pumps oil trapped in shale-rock formations.
This in fact has driven domestic output to the highest in a quarter century and curbing demand for the crude priced off Brent.
Then there is also a lot of oil output is coming from Iran, Iraq and Libya. The three countries have been not producing at their potential for some years; however, as the countries’ political situations are returning to normal, particularly, Iran on whom there was an economic ban on oil exports, have been lifted, there will be a lot more supply in the next year.
Analysts believe that while a second annual drop for Brent would be the first consecutive retreat since 1998, their opinion is that prices are still about 39 percent higher than the average over the past decade.
WTI Little Changed
There was little change in West Texas Intermediate, the U.S. benchmark. The prices settled at $100.32 a barrel on the New York Mercantile Exchange on December 27.
However, according to the latest data coming it looks that the grade is poised for an annual gain of 9.2 percent. In fact, the spread between WTI and Brent averaged $10.67 this year which when compared to earlier times; it was $3.93 over the past decade.
The gap in spread between the Brent and WTI is due to the abundance of U.S. supply at a time of disrupted exports from Iran, Iraq and Libya. However, this won’t improve in the coming years as the U.S. is expected to increase its production in the coming years, even when Libya and Iran will come on the track the next year.
To contact the reporter of this story: Jonathan Millet at email@example.com