Forecasting oil prices is incredibly tricky, of course, since they are so finely attuned to geopolitical events. Instability in the Middle East — from Egypt to Syria to Israel’s confrontation with Iran — can have speculators bidding up the price of crude futures by double-digit-percent gains essentially overnight.
But if the double-whammy of higher global production amid sluggish economic growth continues, oil prices won’t see much action to the upside in 2013.
Indeed, on average, they should fall, and although that certainly will help put more disposable income in consumers’ pockets — and aid corporate profit margins — it’s not good news for anyone looking to make a set-it-and-forget-it long bet on oil.
The tale of this year’s tape should serve would-be oil investors well next year. West Texas Intermediate (WTI) crude oil futures traded on the New York Mercantile Exchange, part of CME Group (NYSE:CME), are off 12% for the year-to-date, pressured by the gusher of new production from hydraulic fracturing and deepwater drilling, as well as a global economy struggling to maintain a growth rate of 2.5%.
And, after rising through the first half of the year, gasoline prices are following suit. After peaking at $3.92 a gallon, the national average price for regular gas is down to $3.30, according to AAA. As we noted recently, every 1-cent increase in the price of a gallon of gas costs consumers roughly $3.8 million in disposable income a day.
So it’s welcome news for consumers and corporate profit margins (outside of the oil business, anyway) that oil and gas prices are forecast to extend those declines through next year.
WTI benchmark crude oil futures are predicted to average $88.38 a barrel in 2013, according to the U.S. Energy Information Administration. That’s only $2 a barrel higher than where they’re trading today — and 6% lower than this year’s average price of more than $94 a barrel.
Keep in mind, however, that that’s the average price. Month-to-month, oil prices can move dramatically — as they did in 2012 — on geopolitical anxiety. WTI hit a high of nearly $110 a barrel back in March, and dipped as low as $80 in June.
Still, the cumulative forecast shows a sizable drop in oil and gas prices. European benchmark Brent crude oil futures, which are more indicative of the global supply-and-demand picture, are expected to tumble to an average of $103.75 a barrel next year, down from more than $111 in 2012.
Next in line are gas prices, which should average $3.43 a gallon in 2013, down from $3.63 this year — a drop of 5.5%.
But what’s good for consumers isn’t so great for anyone looking to make long-only bets on oil next year.
The most popular oil play — the United States Oil Fund (NYSE:USO) ETF — required some very nimble trading to provide profits this year. After a fair bit of volatility, USO is off more than 16% for the year-to-date.
True, the oil-price forecast suggests losses will be more modest in 2013 — but we’re looking at further declines, nonetheless.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.