Oil price forecasts for 2014 – What are the principle factors influencing demand and supply?

Source:Economist, January 10th, 2014

FREEZING weather across America has set new temperature records in the past week with around 190m people affected. Conditions are also starting to influence the cost of oil as people turn up their radiators. On Tuesday prices rose to nearly $94 a barrel ahead of a weekly stockpile report for the country.

Reports suggest prices were also buoyed by continuing uncertainty over Libya’s export capabilities. Since the demise of Muammar Qaddafi, strikes in the country’s oil industry and strife between political groups has meant output has fallen. It is now at under a tenth of the 1.6m barrels a day produced before the civil war.

The recent price-rises may seem slim when compared to prices in the past year: crude averaged $108 a barrel for the first nine months of 2013. The Economist Intelligence Unit recently asked its survey panel of executives to predict where oil prices will head in 2014. Fully 79% of the 1,876 who responded forecast that a barrel will cost more than $100 on average this year; 11% of those thought a barrel will be more than $120.

Hydraulic fracturing (fracking), however, may continue to boost American oil output in the coming months, squeezing prices. The country’s oil production rose by 30% between 2008 and 2013, thanks in part to fracking.

So far, only 21% of survey-panel respondents seem to be on track with their oily prophecies, but Cassandra notes that there are still more than 355 days in which circumstances can change. Events in Iraq, South Sudan and Saudi Arabia may yet have a part to play.