Goldman Sachs Group Inc. (GS:US) cut its forecast for Brent crude futures next year as it signaled stability in long-term prices “anchored” by growth in non- conventional oil supplies from North America.
Brent, trading around $113 a barrel in London, will average $110 next year down from an earlier projection of $130, the bank said in a report e-mailed today. Prices may stay in a narrow range relative to the surge from 2003 to 2008 on increased investment in U.S. shale and Canadian oil-sands production, as well as in conventional deep-water oil, it said. The new supply will be able to meet future demand expansions as the global economy improves, according to the bank.
“This holds out the potential that as the economic recovery continues, the oil market will remain structurally stable,” David Greely, Goldman’s head of energy research in New York, said in the report. “We would expect the curve to remain in backwardation more often than during the structural bull market.”
Brent crude will probably trade around $120 a barrel in the near term on “tight” physical supply, even as price increases are capped by speculation that policy makers will take action to stall rallies, Goldman predicted. On the ICE Futures Europe exchange, the contract for December settlement traded at $113.47, up 25 cents, at 11:21 a.m. Singapore time. Front-month prices are up 5.7 percent so far this year.
West Texas Spread
Brent’s premium to New York-traded West Texas Intermediate crude will probably narrow next year as additional transportation capacity eases supply at a U.S. storage hub, according to Goldman.
The Seaway pipeline, owned by Enterprise Products Partners LP (EPD:US) and Enbridge Inc. (ENB), is being expanded to ship more crude to refiners on the U.S. Gulf Coast from Cushing, Oklahoma, the delivery point for West Texas contracts. This year’s addition of “substantial” rail loading and unloading capacity has also created excess capacity to move Bakken crude to the coasts, Goldman said.
The Brent-West Texas spread closed at $23.95 a barrel on Oct. 15, the widest since reaching a record on Oct. 14 last year. It may narrow to $4 in early 2013 and widen again to $6 by the end of next year, the bank predicted.
Goldman maintained its August recommendation to buy New York crude for June 2013 delivery and sell London Brent futures for the same month. The trade has lost $3.57 a barrel, it said. The bank also kept its call for investors to buy the S&P GSCI Brent index, which has lost 10 percent so far.
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