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Brent price decline to shrink gap with US crude

London, June 27, 2013

Brent crude oil prices will decline further this year and next, pressured by a potential slowdown in Chinese oil demand growth and swelling supplies, a Reuters poll showed on Thursday.

But U.S. light crude futures, also known as West Texas Intermediate or WTI, are likely to rise slightly as excess supply in the Midwest of the United States dries up, shrinking the gap between the two global crude benchmarks.

Reuters' monthly survey of 26 analysts forecasts North Sea Brent crude oil futures will average $106.30 a barrel in 2013, well below last year's average of $111.70, and sink to $105.70 next year, down 80 cents from last month's poll.

"The macro and financial backdrop for oil prices is still unfavourable, with the reduction in global risk appetite, renewed strength of the U.S. dollar and increasing concerns about China all supporting our relatively bearish view," said Julian Jessop of Capital Economics.

U.S. crude is expected to average $94.70 a barrel this year and rise to $96.50 in 2014.

Oil prices will be supported by growing fears that Syria's civil war is dragging in other oil producing countries in the Middle East region, raising the risk of supply disruptions.

"The Syrian crisis, by itself, fundamentally should not have an effect on oil prices," said Abhishek Deshpande of Natixis.

"However, the risk of contagion into key oil producing countries in the region and potential disruptions to supply could add a significant risk premium to oil."

Brent's premium to U.S. crude is seen at $11.60 in 2013, falling to $9.20 in 2014. Brent's spread premium had fallen to $5.60 intraday on Tuesday, June 25, the narrowest since November 2011.

"WTI will continue to close the gap versus Brent with the start of new U.S. pipeline capacity in the autumn," said Carsten Fritsch of Commerzbank.

Though only Capital Economics saw Brent below $100 this year, six analysts saw the North Sea benchmark dropping into double-digits in 2014.

Barclays posts the highest Brent price forecast in the poll, with $112 for 2013 and $130 for next year. – Reuters




Tags: China | US | Brent | Oil Prices |

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