Societe Generale SA raised its forecast for 2012 Brent crude prices by 15 percent to $127 a barrel as spare production capacity in the Organization of Petroleum Exporting Countries shrinks.
Iranian supplies will be cut by about 600,000 to 800,000 barrels a day as a result of a European embargo on the Islamic republic that will take effect in July and co-ordinated measures by the U.S., Mike Wittner, head of oil market research in New York, said yesterday in a report. Saudi Arabia will boost output to fill the gap, depleting the kingdom’s spare production capacity, according to the bank.
“Iranian production and exports are expected to fall,” Wittner said in the report. “Extremely tight OPEC spare capacity will be the key result of sanctions on Iran, and this will be unambiguously bullish.”
Brent crude traded today at about $124 a barrel on the ICE Futures Europe exchange in London. The blend will average $127.50 in the second quarter, surpassing last year’s peak, and then $135 in the third quarter and $130 a barrel in the fourth, SocGen predicts. The bank had previously forecast an annual average for Brent of $110.
Prices are primarily supported by “very tight” oil inventories in developed nations, which are at their lowest level in five years, rather than the threat of conflict with Iran, according to Wittner. This “risk premium” built into the crude is a “moderate” $5 to $10 a barrel, he said.