We think the recent pullback provides a good entry point for long positions in crude oil
The recent pull back in oil prices brings the market back towards levels more consistent with the global economic growth story that was being priced before events in Libya and the MENA region forced the oil market into pricing a supply-shock environment. Although the growth environment is clearly slower than the one before the unrest began and downside risks remain in the near-term, we expect oil prices to move substantially higher over the next 18 months, and are introducing a trade recommendation to be long December 2012 ICE Brent crude oil futures.
Events in the Middle East and North Africa are having a persistent impact, which leads us to increase our oil price targets
We expect that the ongoing loss of Libyan production and disappointing non-OPEC production will continue to tighten the oil market to critically tight levels in early 2012, with rising industry cost pressures likely to be felt this year. We are now embedding in our forecasts that Libyan production losses will lead to the effective exhaustion of OPEC spare capacity by early 2012. Consequently, we are raising our Brent crude oil price forecast to $115/bbl, $120/bbl, and $130/bbl on a 3, 6, and 12 month horizon.
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