Energy Quote of the Day: The Link Between Geopolitical Unrest and US E&P Capital Spending

Investment bank Simmons & Co is forecasting a tightening of the spread between the price of US crude benchmark West Texas Intermediate and global benchmark Brent over the course of the next year, lifted by a robust pace of infrastructure development that can for efficiently move domestically produced oil to market. And with production challenges in places like Iraq and Libya, geopolitical unrest and healthy demand providing support for global oil prices, this could mean that WTI for 2013 stocks close to the $100 per barrel range.

“The consequence of a globally tighter supply/demand framework for oil, coupled with the ongoing frenzied pace of domestic infrastructure growth is that domestic oil prices are likely to persist at the higher end of our targeted price range of $85-100/bbl, helped in part by an elevated geopolitical risk premium relative to the preceding year,” the bank’s analysts said in a note to clients on Tuesday.

“Under this scenario, the E&P industry’s improved financial flexibility and spending wherewithal should result in growing option value for better-than-expected capital spending over time.”