Oil prices and ETFs have lost momentum as Middle East geopolitical tensions subside.
“We expect global prices to trend lower through 2014 as Libya’s production comes back online after labor strike threats and the likelihood of military action likely subsides in Syria,” Michael Kay, an S&P Capital IQ oil equity analyst, said in a research note. “Production and exports in Syria have been declining since the 90s, so any supply halt would be met by increased OPEC production, we think.” [Gold, Oil ETFs Pull Back on Syria Plan]
Supply disruptions remain a large factor in short-term volatility in energy prices.
“The main fear is always a disruption of supplies, which will unavoidably result in a rise in price,” Kay added. “Military action could disrupt supplies in the region, not just Syria, so that’s the main concern…. Going forward, Syria would be a great conduit for pipelines to transport oil and gas to different regions. Undoubtedly, any military action would disrupt any infrastructure buildout and delay any plans the country has had to become a major pipeline operator.”
S&P analysts maintain a high WTI price projection, with a $99.56 per barrel price for 2013 and $95.95 per barrel for 2014. WTI crude is currently trading around $103.6 per barrel. The U.S. Oil Fund (NYSEArca: USO) is up 13.2% year-to-date.
While natural gas inventories are below what they were last year, the gas market still sees large supplies. [Natural Gas ETF Tests Long-Term Trend Ahead of Supply Data]
“We think gas markets are well supplied and prices will see only modest improvement over the next several years as Marcellus Shale development continues,” Frank Slusser, S&P Capital IQ Editorial, said in the research note.
S&P analysts predict Henry Hub natural gas prices to average $3.61 per million British thermal units in 2013 and average $3.86 in 2014. Natural gas futures are currently trading around $3.6. The United States Natural Gas Fund (NYSEArca: UNG) is up 2.4% year-to-date.
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Max Chen contributed to this article.