COLUMN-Firm start to 2012 forces oil bears to pull claws: Kemp

Thu Jan 26, 2012 10:29am EST

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(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON Jan 26 (Reuters) - EU sanctions on Iran's oil exports and fears about disrupted supply lines may not have made bullish oil analysts more confident since the start of the year, but they have forced bears with below price average forecasts to scale back their estimate of downside risk.

Seven analysts have made significant changes to their forecasts for average Brent crude prices in 2012 in January compared with December, according to an analysis of the latest oil price poll published by Reuters.

Six analysts raised the predictions by $5 per barrel or more, while one cut their forecast by $8. Every one of the analysts raising their forecasts this month had previously been significantly below the median in the December poll, while the lone analyst to cut their prediction had been significantly above average.

The result is that forecast clustering has intensified. The standard deviation among institutions surveyed in November and January was around $9.25, falling to $7.50 in the January poll.

Pressure to stick close to the consensus remains fierce, but so far it is analysts with the more bearish forecasts who have been forced to come into line, while bulls stick with their earlier numbers (here).

Forecast clustering to this degree looks incongruous. The average change in annual Brent futures price from one year to the next since 1990 has been 23 percent. Market forecasts are converging on $107 in 2012, which is less than 4 percent away from the $111 average in 2011. So much price stability from one year to the next would be unusual.

Clustering may be an inevitable consequence of competitive pressure on analysts (it's better to be wrong in company than on your own), as well as the unusual lack of volatility in oil markets at present and range-bound trading inside a tight $105-115 band which has not seriously been challenged since summer 2011.

In the absence of a dominant narrative, most analysts seem as uncertain about when and which way prices will break as the rest of the market, and are therefore predicting no change.

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