The New York Energy Forum held its annual kickoff meeting last Thursday night, where leading market analysts presented their views about where oil and natural gas markets are headed this year. Sanctions-bitten Iranian crude output, the interplay of fundamentals and financial factors in oil markets and the US petroleum output boom were all topics of discussion.

Global benchmark crudes West Texas Intermediate and Brent have been range bound for the past two years and the speakers expected little change in 2013, despite an uptick in global oil demand.

Katherine Spector, Head of Commodities Strategy, CIBC World Markets and Member of the Energy Forum Board explained that she now looks to the “call on Saudi crude” as the underlying driver of global oil market fundamentals, as opposed to the call on Opec output, which has long been the metric utilized by analysts. David Knapp, Senior Editor, Energy Intelligence Group, and a board member as well, moderated the panel and echoed this shift in market view.

The call on Saudi crude refers to the volume required from the Kingdom to balance global supply and demand. Market watchers now focus more on the Gulf powerhouse than the producers’ cartel as a whole due to sustained outages in Iran and Libya, the speakers said.

Spector highlighted the severe impact international sanctions against Iran have had on the country’s oil output, which declined from about 4 million barrels per day in December of 2009 to around 2.7 mmb/d in the closing months of 2012, effectively removing well over a million b/d from the global market.

Trend Reversal

In an example of the oil market’s unpredictability and cyclically changing nature, Spector reminded the audience that US refiners invested billions of dollars upgrading Gulf Coast facilities to run heavy, sour crude slates because just a few years ago supplies of light, sweet crude were constrained and thus trading at a premium to inferior grades. “Virtually overnight,” US production growth from the Bakken and Eagle Ford formations has left refiners awash in light, sweet supply, forcing them to again adjust their business strategies.

One likely outcome of this quality imbalance, according to Spector, is that refiners will reduce their coker utilization – referring to the refining units required to process “dirtier” crudes – sacrificing some of their diesel yield as a result.

With regard to 2013 natural gas markets, Spector said she is “not bullish, but less bearish,” which is perhaps the best North American producers can hope for given the persistent historically-low prices amid glutted supply that have characterized the market for the past few years.

She forecasts an average 2013 Henry Hub price of $3.40 per million BTU, unless a sustained bout of extremely cold weather blankets the US and Canada, which currently appears unlikely.

North American producers are extremely under hedged at the moment, said Spector, referring to the practice of using the futures market to lock in a price higher than the current spot price for future production. This un-hedged position means that when gas prices rise, producers will likely sell into the market, she said.

Back on the oil market side, William Brown, President, WHB Energy Research explained that for the past few years the price of WTI crude has been driven by a varying combination of fundamentals and financial factors. There has been an ongoing debate about whether oil prices are influenced more by supply and demand or the market activity of banks and large funds. The speakers agreed it is not a black and white issue and the most reasonable answer is “it’s both.”

The Price Forecasts

While he believes 2013 global oil demand will be higher than current consensus estimates, Brown said greater volumes coming from non-Opec producers and Iraq will likely be sufficient to cover the demand increase.

Brown said North American natural gas markets have been more driven by fundamentals than oil markets and showed the correlation between winter heating demand and prices on one of his slides. He also showed that as utilities increasingly generate electricity with natural gas – at the expense of coal – a summer price increase has become more prominent, mainly due to air conditioning demand spikes.

Brown’s average 2013 WTI price forecast is $94.50 per barrel and his average dated Brent forecast for the period is $110.25/bbl. WTI averaged 94.05/bbl in 2012 and Brent crude oil averaged $111.67/bbl.

Brown’s average 2013 prompt-month NYMEX Henry Hub forecast is slightly higher than Spector’s at $3.80/mmbtu, and Knapp’s is higher still at $4.25/mmbtu which he chalks up to “demand-driven” pressure. Knapp’s average 2013 WTI price forecast is $93.50/bbl.