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2013 Oil Supplies to Be 'Much Higher' Than Demand: Jefferies

The interminable budget talks in Washington are causing oil prices to fluctuate this week and oil future contracts are trading lower Thursday morning as fiscal cliff negotiations stall. On Wednesday oil prices were headed higher after government data showed a decline in weekly inventories.

Andrew Lebow, senior vice president of energy derivatives at Jefferies Bache, tells The Daily Ticker that he's "bearish" on oil prices because supplies will exceed demand in the U.S. and globally next year. He lowered his estimated trading range to $75 to $100 per barrel from roughly $77 to $110 this year.

"Next year's demand [in the U.S.] will probably grow 0.8 million barrels per day after an 0.8 million barrels per day growth in 2012," he notes. "That's really sluggish growth. Supplies for in 2013 are going to be much higher than what the demand is projected to be."

Domestic supplies are running at three to four days above the four-year domestic average, largely because of hydraulic fracking says Lebow. Fracking refers to how natural gas is extracted from shale rock formations. Fluids are injected into the cracks of rocks at high pressures, allowing for more oil and gas to be extracted.

Related: Fracking: It's Good for the Economy...and the Environment?

The resulting surge in U.S. oil and gas production has led the International Energy Agency to announce last month that the U.S. will overtake Saudi Arabia as the world's biggest oil producer before 2020 and become a net exporter of oil around 2030. Lebow calls this a "miracle."

Related: US to Pass Saudi Arabia in Energy Production, IEA Says

Gasoline prices this week fell to their lowest level of the year with regular unleaded now averaging $3.22 a gallon, about the same price as a year ago. That's good news for anyone traveling by car for the Christmas holiday. A dramatic buildup in gasoline inventories is behind the decline in gasoline prices and they could fall even further in 2013, says Lebow. He's forecasting a range between $3 and $4 a gallon.

The lower prices for gasoline and crude oil could be temporary if tensions between Israel, Iran and the U.S. heat up again, he says.

"Iran is probably going to move front and center sometime in late first quarter, maybe second quarter" as a factor in the oil market, says Lebow. "These geopolitical risks don't go away," he says, adding that they currently account for $7 to $10 a barrel in the price of crude oil.

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