Our SVAR decomposition of shocks to the oil price shows that positive supply shocks have been the main driver of oil prices this year. Furthermore its shows that despite the long list of unresolved geopolitical conflicts in major oil producing countries, precautionary oil demand shocks have been absent.
We expect this pattern to continue in 2015 and thus see geopolitics as a limited risk factor for the oil market next year. Nevertheless, we expect prices to rise next year from the current low level as OPEC brings back output within its 30mb/d target and global growth increases.
We forecast the Brent crude oil price will average USD94/bl next year, jet fuel will average USD880/MT, ULSD will average USD816/MT and 3.5% fuel oil will average USD503/MT.
Overall, our forecasts are below the prices in the forward market and we recommend clients on the consumer side hedge exposure at current low levels.
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