Oil prices likely to fall in 2014 on surging supplies

23-Dec-13

Crude oil prices will fall next year as higher production and subdued demand growth offset tensions in the Middle East and North Africa, as per Reuters poll. The shale boom in the United States and increasing output in Iraq will keep the market well supplied, keeping a lid on prices. Reuters' monthly oil price survey of 27 analysts forecast North Sea Brent crude oil would average US$103.50 per barrel in 2014, softening further from last month's poll prediction of US$104.10. Average for 2013 has been at around US$108.60. "Oil production will continue to outpace the rise in demand and we therefore expect oil prices to remain under pressure in 2014," said Hans Van Cleef, energy economist at ABN Amro Bank in the Dutch Capital, Amsterdam. Speculative activity in commodities markets could also be tamed by the unwinding of US monetary stimulus programs, adding further pressure to oil prices next year. Gain Capital analyst Chris Tevere said the reduction of the US economic stimulus could weigh on growth and thus exert downward pressure on crude in 2014. "That being said, tapering asset purchases should coincide with an improving economic outlook, thus it may have a more diminished influence on crude oil," Tevere added. The dollar response to the ending of the US stimulus was likely to have a significant effect on oil prices, NAB economist Vyanne Lai said. However, Lai added, "any tapering effort is likely to be moderate and gradual, so there might be some level of a knee-jerk reaction when the initial tapering takes place but the effects are likely to be temporary." The poll forecast US light crude, also known as West Texas Intermediate or WTI, would average $96.4 a barrel in 2014, down from $97.3 in last month's survey. Geopolitical tensions across the Middle East and North Africa, including Iraq, Libya, Syria and Egypt, would also help keep a floor under oil prices. Protesters in eastern Libya are blocking several oil-exporting ports that had previously handled around 600,000 barrels per day (bpd) of crude oil exports, and Iran's exports are also severely curtailed by western sanctions over its nuclear program.