America’s oil rush spills over to benefit Britain – The Times

Oil prices are forecast to slump by up to $12 this year, the biggest annual drop since 2009, because of a glut in American shale oil, The Times reports. Leading analysts have forecast a significant drop in the price for Brent crude, which averaged $109 per barrel last year. The result would be a drop in petrol prices and could even translate into a cut in UK household energy bills because gas prices, which make up half the bill, are indexed to the cost of crude.

It is thought that haulage costs for companies would also fall in line with the oil price, potentially bringing down the cost of goods for consumers more generally.

According to analysts, the shale ‘revolution’ in the United States is driving down prices. The US is expected to boost oil production by a million barrels per day next year for the third consecutive year, further evidence that the boom will transform America from being one of the world’s oil-producing also-rans into the world’s largest. While global supply is booming, demand growth is slowing, particularly from emerging economies, as their growth become less intensive.

Geopolitical tensions also are easing, which has removed the “risk premium” that pushed up oil prices. In particular, the thaw in relations between Iran and the West and the decision by the US to stay out of the Syria conflict have reduced the chances of a supply disruption.

Citigroup lowered its forecasts for 2014 from $108 to $98 after the US scrapped plans for a strike in Syria in September. Deutsche is the most bearish of the leading banks, pencilling in a $97.50 average price for Brent crude this year. Goldman Sachs, which has a record of being one of the best at calling the commodity cycle, thinks that prices will be higher, at $105, but says there are “significant downside risks”, particularly if geopolitical tensions continue to ease.

 

Read the full article from the Times at: http://www.thetimes.co.uk/tto/business/industries/naturalresources/article3963238.ece

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