Oil Market Update – March 2014

Since mid-January, several idiosyncratic factors, such as the ramping up of takeaway capacity by the Keystone XL Pipeline, better US economic data and unseasonably cold weather, have propped West Texas Intermediate (WTI) prices relative to Tapis and Brent.

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  • Since mid-January, several idiosyncratic factors, such as the ramping up of takeaway capacity by the Keystone XL Pipeline, better US economic data and unseasonably cold weather, have propped West Texas Intermediate (WTI) prices relative to Tapis and Brent.
  • The escalation of geopolitical tensions in the Ukraine also supported oil prices more generally in February and early March, especially Brent. Prices have since moderated on easing concerns that economic sanctions over Russia’s Crimean annexation would cause significant supply disruptions.
  • Saudi Arabia’s effectiveness as a swing producer among OPEC producers has been made increasingly difficult by the rapid recovery of Iraqi crude output, which is free of quota at the moment. Iraqi oil production has been on an upward trajectory since 2007 as security conditions improved, and is poised to record its highest annual growth on record in 2014.
  • Chinese crude oil imports have been more resilient than its faltering industrial data might suggest, largely reflecting its quickly expanding crude processing capacity.
  • We expect crude prices to moderate in the near-term, with the correction in WTI likely to be more pronounced from its recent sustained rallies. Brent price prospects are also weighed down by rapidly expanding Iraqi and Iranian output, in additional to mounting competitive pressures from booming North American supplies.

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