Brent crude spot prices have fallen to as low as $98 per barrel, the lowest level since July 2012, after traders reacted to the IMF revising their global economic growth forecast to 3.3 per cent from 3.5 per cent. In the same global economic outlook, the IMF forecasts oil prices to average $102.60 in 2013, above today’s close. Oil production gains in North America from unconventional resources coupled with oil demand destruction in OECD countries from fuel efficiency gains will continue to weigh on crude prices going forward, but there is also strong price support.
Economic difficulties in OECD countries, particularly in Europe, are resolving themselves slowly and any further deterioration in Western economies would likely spur new policies bolstering growth and sparking demand. There risks of a major supply disruption in the Middle East or Africa where geopolitical risks remain high. Syria remains in conflict and an Iran with nuclear intentions continues to defy, with other hotspots in the region on the perpetual edge maintaining a fear premium in prices. Apart from these potential supply shocks, with a global production share of over 40 per cent, the OPEC still heavily influences prices. The cartel has a target price of $100 per barrel strategically set to continue fueling member-country economies and governments. Deviation from their target is likely to be met with oil production cuts to support their desired price, they meet in Vienna May 31st.