Check Out SocGen's Tremendous Presentation On Why Oil Prices Are Heading Down In 2013

SocGen oil outlook intro slide

Photo: Société Générale

SocGen’s top commodities strategist Mike Wittner recently revealed his forecast for oil in 2013, and he thinks the world’s most important commodity is headed lower.Although oil has bounced since June, Wittner doesn’t see these levels holding much longer.

In a note to clients accompanying this presentation, Wittner wrote that “the sluggish ‘muddling through’ macro environment and macro downside risks will set the ceiling for the trading range, along with the possibility of a strategic reserves release by IEA countries. Persistent geopolitical risks in Iran and Syria will set the floor, along with market expectations of EU and US policy stimulus (liquidity injections in the form of bond purchases).”

Wittner really drills down into the numbers underlying these predictions in the following slides to give a complete picture of the state of the oil market right now and how it’s likely to evolve over the next years.

Note: Thanks to Société Générale for giving us permission to feature this presentation.

Oil has been on a run since June

Oversupply is over in most of the developed world but is still an issue in China

The recent bounce in all risk assets is overstretched

The correlation between stocks and oil shows that risk appetite is driving the current bounce

Modest oil demand growth reflects a weak macro environment

China is expected to contribute less to oil demand growth

U.S. oil demand should grow in 2013, but only slightly

Non-OPEC oil producing nations will pump a lot more oil in 2013

OPEC will have to cut production volumes

Tensions over Iran are heating up

Syria threatens the stability of the entire region

A Strait of Hormuz shutdown would send oil soaring to $150 or higher

Prices will drop from the top of the current trading range in 2013

Seasonal weakness in oil demand is being masked by planned maintenance in the North Sea

U.S. oil pipeline dynamics are important to consider

All of this suggests lower oil prices in 2013

Here are the risks to the bearish call on oil

An SPR release could occur at $115 oil but would be more likely at $120

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