Three oil price scenarios for 2012

CGES ANALYSTS | JANUARY 2012 | SOURCE: Oil Product Price Report

Oil prices were shaped by a number of factors in 2011 including OPEC action – or inaction – social unrest and natural disasters.

Here we examine three potential scenarios for where oil is headed in 2012 – a reference case, a low oil price scenario and a high oil price scenario.

Three oil price scenarios for 2012

1. Reference scenario

In our Reference case, we maintain our pessimistic view of oil demand growth for both 2011 and 2012.

We now believe that global oil demand will show a small year-on-year decline in 4Q11, with mild weather holding sway over much of Northern Europe for most of the quarter in stark contrast to last year.

As a result, oil prices will fall over the course of 2012. Dated Brent will drop below $100/bbl in 2Q12, continuing to fall to $91/bbl in 4Q12 and averaging $96/bbl for the year as a whole.

2. Low Price scenario

In the Low Price case, we assume that weaker global economic growth undermines further our base-case incremental oil demand in 2012, reducing it to just 300,000 bpd (0.3%).

By maintaining the non-OPEC output profile from the Reference case, the volume of OPEC oil needed to keep prices constant falls to a mere 28.6 mbpd, 1.4 mbpd below OPEC’s agreed output level and almost 2.3 mbpd below current production.

Dated Brent falls to $56/bbl by 4Q12 and averages $76/bbl for the year, assuming no OPEC intervention.

3. High Price scenario

Our High Price case examines the impact on prices of a repeat of this year’s poor performance by non-OPEC producers in 2012.

Instead of the 800,000-bpd of aggregate non-OPEC output growth in the Reference case, we assume growth of just 400,000 bpd.

With OPEC crude oil production again held constant, Dated Brent averages $107/bbl in 2Q12, and sets a new annual record of just over $112/bbl for 2012 as a whole.

Related article: OPEC cuts production – but who will bear the burden?

Saudi Arabia’s budget in 2012

Non-OPEC oil production outlook for 2012

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