Energy Markets Outlook For 2013

The energy markets contended with historic headline news in 2012, yet for the most part, weathered the storm.  Let's look back at the year that was and project what the sector faces in 2013.

The crude oil markets were peppered with bullish headlines from the major OPEC region throughout 2012.  The markets nervously watched as new regimes took power in Libya and Egypt. The civil unrest in Syria threatened stability in the region.  Iran continued their defiance and bluster with their attempts to develop nuclear capabilities.  Meanwhile, escalating violence between the Israelis and Palestinians added to the Middle East uncertainty.   Normally, with this much uncertainty in the major oil producing region of the world, we would expect prices to skyrocket.  However, after rallying early in the year, the crude oil overcame these obstacles and traded in the $80-$100 range for the majority of the year.  In fact, as of this writing, the crude oil looks like it will finish down on a year over year basis.

Much of crude oil's resistance can be attributed to the supply side of the equation, primarily outside of the OPEC cartel.  Domestic oil production in the United States is at 15 year highs.  New technology is helping to unlock vast amounts of Canadian oil sands that were previously deemed uneconomical. Meanwhile, worldwide consumption continues to fall as higher fuel economy standards are beginning to have an impact and global economic growth remains tepid.  The increase in North American production and decrease in demand has helped to drive crude stocks well above their five year average:  (more)