Wednesday, April 27, 2011

Reuters Oil Poll - 2 year forecast and what it implies

I came across an intriguing graphic from Reuters this morning. Data taken from Thomson Reuters Datastream and a Reuters poll suggests that while the projected price of oil would drop slightly from it’s current price, it would remain high through 2013.
But forecasts are fleeting; the level of crude was of less import than the fact that the projection maintained a spread between WTI and Brent -something that hitherto has been minimal.
To my chagrin, I do not have access to a Reuters terminal so Bloomberg will have to do.
Here is the 1 year chart of the spread between WTI minus Brent (click on it to see in detail).
Specifically, it is the ICE Futures Spread contract for the future month (ENM1COM1 Comdty is the Bloomberg ticker).

So what is the fuss about?
Simply put, the maintenance of the spread by those polled implies that (at the very least) there would be no cessation of hostilities between the Libyan despot and the
eclectic crew of rebels espousing some form of freedom and liberty.
It is probably worthwhile to jog our memories about the geopolitical significance of Libya; Stratfor
has an excellent graphic depicting the energy and arms linkages to Europe.

Do you see the spread between WTI and Brent widening or narrowing in the future?

Much would depend on your view of the timeline of civil war in Libya, the restoration of a functional supply infrastructure; the ability for the hypocritical House of Saud to talk down the price of crude while talking up Saudi Arabia's supposed ability to substitute for Libya's supply --a classic red herring as the two supplies are not interchangeable given the difference in grade-- and the general continuation of the Arab Spring.