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Where will oil prices head in 2013?
Wed, 30 Jan Pre-Open

The oil markets are notorious for being driven by speculation rather than the actual demand and supply dynamics. Nonetheless, every time the OPEC (Oil and Petroleum Exporting Countries) comes up with estimates, the world is all ears. This is because the cartel controls around 40% of the global oil supplies. So OPEC has once again gone public with its estimates on oil markets in 2013. It has a stable outlook on the same and has given guidance of around US$ 110 a barrel on average for oil prices. This compares with actual annual average of around US$ 111.5 per barrel in 2012.

OPEC expects 2013 to mirror 2012, as suggested by improving growth rates in China, India and US. However, this guidance excludes the geopolitical events that can have a potential impact on the oil prices. Keeping history in mind when geopolitical events have over ridden all factors to govern oil prices, the guidance carries hardly any weight and leaves everything to time. Also, the statement from OPEC that it is likely to keep its production stable for the time being should be taken with a pinch of salt. The cartel has hardly ever stuck to the limits it has set for itself. Infact in the months of November and December itself, Saudi Arabia, the highest oil producing member country of OPEC had cut supplies to the lowest in the year.

And then there are events in the non OPEC regions that suggest otherwise. While OPEC projects a stable outlook, the weak global growth and higher domestic oil production in the US suggest subdued prices in the future. A higher production from US could be a threat to OPEC's monopoly in oil markets and impact the cartel's influence on oil pricing in an adverse manner. Though OPEC is downplaying the increased production from US and suggests stable production, one should not be surprised to see OPEC reacting to the changing supply scenario by cutting supplies leading to price rise. To conclude, the variables that decide oil markets are huge and it is best to be prepared for the volatility that oil markets are so well known for rather than hanging on to every word spoken by the OPEC.

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