Oil Market Q4 Outlook

By Robert Sullivan – Exclusive to Oil Investing News

Having peaked at $114.80 per barrel in late April, West Texas Intermediate (WTI) crude oil has since slid back to hover around the $90 per barrel mark WTI opened 2011 at. While some analysts believe oil markets could still show significant volatility over the fourth quarter, the broader consensus appears to be that oil will hold its ground and end the year where it began.

The US Energy Information Administration (EIA), in their most recent Short-Term Energy Outlook released on September 7, forecast prices in the $90-$100 per barrel range for WTI through to December. Their forward projections now suggest that there is only a 29 percent probability that oil will end the year over $100 per barrel, as opposed to June when they had indicated the likelihood was over 41 percent.

Despite this, the EIA report also notes markedly higher levels of volatility in the pricing of WTI crude since early August. This coincides with similar volatility in global stock markets in the wake of the US and European debt crises, and highlights the extent of the correlation that has developed between financial and oil markets.

“[WTI] crude is kind of tracking the S&P 500 tick for tick”, Todd Horwitz, chief strategist at Adam Mesh Trading Group told Bloomberg in a recent interview. “[It’s] an extremely volatile product.”

Brent crude, meanwhile, remains at a $20 per barrel premium to the $94.80 per barrel it traded for in January, and although supply is still very tight, the revised forecast from the EIA now suggests only a 32 percent chance of Brent bouncing back above $120 per barrel by the end of the year.

Supporting this assessment is news that a shipment of oil from Western Libya, the first since March, should occur within the next week. The cargo from Mellitah is expected to be about 600,000 barrels, and would be the third shipment arranged by the country’s National Transitional Council (NTC) since the conflict began.

Cargoes are likely to be sporadic over the short-term as the NTC works to rebuild the country’s oil infrastructure, but Thina Saltvedt, analyst at Nordea Bank AB in Oslo, believes the Mellitah shipment is a positive sign.

“It’s an important cargo”, she said, speaking to Bloomberg, “This should contribute to calming down the Brent market, but we still need to see more cargoes coming out”.

Saltvedt added that she believed Brent would finish out the year around the $110 per barrel mark.

Disclosure: I, Robert Sullivan, hold no direct investment interest in any company mentioned in this article.