Photo: Chesapeake Energy
Goldman Sachs analyst David Greeley has lowered his Brent oil price target for 2013 to $110 from a prior forecast of $130, based on what he sees as a “structural shift” in markets — mostly the result of hydraulic fracturing, or “fracking,” in North America.Brent is the oil contract traded in London, and has come to reflect worldwide market forces acting on crude much better than West Texas Intermediate, the contract traded in the U.S.
Greeley says increased investment will resolve the issues that have prevented fracked fossil fuels from North Dakota and Alberta from reaching international markets.
The result is that the Brent market will remain stable as there will be plenty of enough supply to satisfy demand, even as it shifts through the seasons.
While we now expect Brent crude oil prices to remain in their recent trading range in 2013, there is increasing evidence of an important structural shift in the crude oil market that will likely keep Brent crude oil prices range-bound over the long-term.
…the structural bull market of 2003-1H08 was driven by rising long-dated crude oil prices, which needed to be higher in order to motivate a new generation of investment in oil production capacity.
We believe that the potential for substantial growth in crude oil supplies from US shale, Canadian oil sands, and the deepwater holds the potential to keep long-dated oil prices stable. Brent crude oil prices would then be determined by the shape of the forward curve, and driven by cyclical factors such as inventory levels, and the near-term supply-demand balance.
It’s becoming more clear how the American energy revolution is changing the world.
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