Airlines should brace for another year of fuel price pain, with no respite in prospect from the current record average oil prices.
In its annual year-ahead forecast, Bank of America Merrill Lynch predicts a "stable but high" $110 per barrel as the 2013 average price of Brent Crude, whose level is tracked carefully by jet kerosene. At $110, Brent would essentially maintain the 2012 average that has cuased such pain for airlines this year.
BAML commodity strategist Sabine Schels adds that Brent could likely touch $120 by end-June, as continuing uncertainty over US government fiscal policy leaves markets anxious. The "cap" for Brent in 2013, though, will be $140, she believes - within sight of Brent's all-time high in the run-up to the onset of the financial crisis in the summer of 2008.
Schels, speaking at BAML's City of London headquarters, says "divergent forces" were tugging on oil prices, with some lift from modest forecast global economic growth of 3.2% tempered by European contraction and fears that the US government may go over the so-called fiscal cliff, allowing the automatic enactment in January of legally mandated spending cuts and tax rises worth several percent of US gross domestic product.
Outside of North America, she says, oil supply remains severely constrained by geopolitical disruption in the Middle East.
However in the US, she adds, the possibility of a fiscal cliff-induced recession leaves some risk that West Texas Intermediate could temporarily dip to as low as $50 in the next 12-18 months on low-demand worries.