Between
major disruptions to crude-oil supply and worries about an economic downturn
that could crimp demand, this year has been incredibly volatile for oil
markets.
And 2012 looks set to be more of the same, with threats to both supply
and demand to continue influencing oil prices.
This year, the price of Brent crude swung between $92.37 and $127.02 a barrel
amid the loss of high-quality Libyan crude and its subsequent
faster-than-expected resumption, Middle East unrest, the U.S. credit-rating
downgrade over the summer, and the ongoing euro-zone sovereign-debt crisis.
Overall, however, oil prices have proven remarkably resilient in the face of
economic worries, with Brent crude trading over $100 a barrel for most of the
year, while U.S. crude was mostly in the $90s. Overall, front-month Brent has
risen 14% this year, to $107.72, while the front-month futures contract on the
New York Mercantile Exchange has gained 8%, to $98.67.
In 2012, new geopolitical risks that will threaten supplies -- namely a
proposed European Union oil embargo on Iran
-- come on top of simmering unrest in key Middle East nations, supply losses from
Syria and Yemen and a shortfall from Libya. Meanwhile, the euro-zone debt
crisis lurches from one summit to the next, still unresolved, and hurting
economic growth.
"There are lots of key risks for next year: downside is macro, upside is
geopolitics," says Amrita Sen, oil market analyst at Barclays Capital. "That
key tug of war over the latter half of this year will definitely continue, at
least into the first half of next year."
Most analysts expect oil prices to be softer in the first quarter as the
euro-zone crisis dominates the news and unseasonably warm winter weather keeps
oil demand weak.
Prices could start to recover as early as the second quarter, analysts say, but
more likely a rebound will come in the second half of the year.
This is expected to happen as oil demand in China, sluggish over the summer but
picking up recently, expands and the as-yet-fragile economic recovery in the
U.S. gathers pace amid an anticipated resolution to the euro-zone crisis.
One of the biggest risks to the upside is Iran,
which could outweigh the bearish effects of concerns over weaker economic
growth.
An EU embargo of Iranian crude would halt around 600,000 barrels a day of
imports, hitting Europe's refiners hard and further tightening markets and
inventories, putting upward pressure on oil-futures prices, the International
Energy Agency has said.
Goldman Sachs Group, one of the most closely watched banks, is forecasting
Brent crude to average $120 a barrel next year and Nymex crude to average
$112.50. Barclays Capital forecasts Brent will average $115 a barrel in 2012
and Nymex crude $110 a barrel.