We forecast annual average oil prices will be a little lower next year than this year’s outturn (by around $4 for Brent and $1.50 for WTI). However, the unstable situation in the Middle East means that next year the risks of an oil price spike are still much greater than the likelihood of a big move lower, in our view.
We do believe the oil market is in the midst of a turning point for fundamentals, though. Non-OPEC supply is growing at its fastest for many years, is on track to exceed global demand growth this year for only the second time since 2002, and we expect that excess to widen much further, to around 500 kb/d in 2014.
Supporting that expansion, US crude oil output growth is forecast to slow slightly from this year’s rapid pace, but that will be more than made up for by better performance elsewhere in non-OPEC. An overall expansion of around 1.5 mb/d for non-OPEC, the fastest in 30 years, looks likely in 2014.
Offsetting the negative impact of this growth on prices, OPEC is likely to struggle to meet even a lower market requirement for its oil in 2014. Output remains constrained in Nigeria and Libya, is at risk in Iraq and is still hampered by sanctions in Iran that will likely remain in place for at least the next six months.
Should stability return to the Middle East and parts of North Africa, several OPEC countries should eventually be able to raise their output substantially. That means a day of reckoning between oil supply growth and prices may still loom on the horizon, but it is unlikely to be a 2014 event.