Specious Argument

My expectation for December’s West Texas Intermediate (WTI) oil prices remains unchanged from last month where the range was between $65 and $75 per barrel.

Although the US election is now behind us, I believe that, in the near term, the election results will not significantly affect US oil production and, therefore, oil prices.

OPEC+ has delayed its meeting from December 1 to December 5. Most analysts believe that oil production cutbacks will be extended. By the end of the upcoming week, we will know OPEC+ plans for the next quarter or two.

There seems to be a cautious outlook for December and 2025. One of the more bullish investors is Eric Nuttall. Nuttall provides his outlook for WTI to generally range between $70 and $80 per barrel in the Financial Post article “Hoping Trump revives Keystone XL? Don’t hold your breath, Nuttall says.” The article has a five-minute video that is worth watching.

Nuttall is slightly more sanguine than I am because my expectation is more of the same—that is, WTI oil prices should range between $65 and $75 per barrel.

For those interested in a more comprehensive interview with Nuttall, I encourage you to view his half-hour interview with Investing News on YouTube “Eric Nuttall: Oil Facing Volatile 2025 — Where I’m Investing, Plus Prices, Supply and Demand.”

I do not expect any significant developments in the next month or two. Beyond that, I am concerned about the global geopolitical environment and current stock market valuation.

Charlie Bilello posted a chart on X showing that the US stock market appear rich. When the markets become stressed, correlations tend to converge to one. That implies that oil markets may become turbulent as well.

Like all years, 2025 should be interesting and challenging for oil traders and oil company equity investors.

I wish everyone a Wonderful Holiday Season and a Happy, Safe, and Healthy New Year.

My expectation for November’s West Texas Intermediate (WTI) oil prices is that WTI should range between $65 and $75 per barrel.

WTI has been hovering around these prices recently. With the upcoming election only a few days away and the upcoming OPEC meeting in early December, oil prices are likely to remain in this narrow range until more is known.

The US election should not alter the price of oil in the short term. Traders prefer to have more certainty, however, before learning strongly in one direction or other.

The more important event is the OPEC meeting. The big question is what OPEC will do. Does it return barrels to the market, or does it hold off?

According to Rystad Energy, OPEC is likely to hold off, according to a Bloomberg article “OPEC+ Won’t Bring Back Oil Production This Year, Rystad Says.”

OPEC and its allies aren’t likely to bring oil output back this year because producers are “making huge money” from refined products, according to Rystad Energy.

“Our view is that they will continue to cut the barrels and keep the present market short,” Mukesh Sahdev, Rystad’s head of oil trading and downstream analysis, said at a conference in Houston. The producer group led by Saudi Arabia and Russia would like to keep global oil prices in the $75-$80 a barrel range, he added.

Global oil prices refer to Brent oil prices, which are typically $3-$4 higher than WTI prices.

From my reading of other sources, this price range seems reasonable.

After the December OPEC meeting, analysts and traders will review and revise their outlooks accordingly.

My expectation for October’s West Texas Intermediate (WTI) oil prices has changed. For October, I expect that WTI should range from $65 to $85 per barrel. A narrower range is from $67.50 to $77.50 per barrel. The wider range has shifted downward by $5 per barrel. And the narrower range has also shifted down.

This past month’s movements in oil prices seemed rather severe. Only a few weeks ago, some were talking about Brent oil prices, which are typically three or four dollars per barrel greater than WTI’s prices, possibly hitting a hundred dollars per barrel by late summer. Now, many are hoping that oil prices do not crash.

While there are concerns about the global economy and additional non-OPEC production for 2025, it is not as dire as many would have you believe. Some have become overly bearish and point to negative news articles, like the September 26 Financial Times article “Saudi Arabia ready to abandon $100 crude target to take back market share” (subscription required).

Saudi Arabia is ready to abandon its unofficial price target of $100 a barrel for crude as it prepares to increase output, in a sign that the kingdom is resigned to a period of lower oil prices, according to people familiar with the country’s thinking.

The world’s largest oil exporter and seven other members of the Opec+ producer group had been due to unwind long-standing production cuts from the start of October. But a two-month delay sparked speculation over whether the group would ever be able to raise output, with the price of Brent crude, the international benchmark, briefly dropping below $70 this month to its lowest since December 2021.

However, officials in the kingdom are committed to bringing back that production as planned on December 1, even if it leads to a prolonged period of lower prices, the people said.

Oil prices gyrated lower after this article was published.

Saudi Arabia and OPEC+ do not have target oil prices. Instead, they target supply demand balances. Now, some might believe that is just semantics. No, it is different. To attempt to have oil prices at $100 or higher would require heroic efforts. And it would be self-defeating because it would encourage non-economic production into production to reverse oil prices.

Instead, OPEC+ wants to keep a buffer capacity to meet unexpected challenges and allow supply and demand to find its proper level. If OPEC+ took a hands off-hands approach, OPEC+ production and exports would increase, oil price would fall, and higher cost producers would go out of business. Then when the world economy gathered some steam, there would be no buffer capacity to meet the additional demand. Prices would spike much higher than wanted or desired until others came to the rescue by starting or increasing their production. In short, prices would be much more volatile.

Amrita Sen from Energy Aspects provided a rebuttal to the Financial Times article.

This is a MUST watch 5 minute interview by @ea_amrita who calmly and clearly outlines why there is no reason for panic and why the market is misinterpreting OPEC+'s intention to gradually return barrels in December (market dependent). There is NO market share battle coming IMO. pic.twitter.com/St5D8xsQOm

— Eric Nuttall (@ericnuttall) September 27, 2024

Wrapping up, I expect oil prices to remain volatile as investors assess the US election and potential policies, geopolitical uncertainties in the Middle East and in Ukraine, and the health of the global economy. When WTI goes below $70, it seems too bearish.

My expectation for September’s West Texas Intermediate (WTI) oil prices has changed. WTI should range from $70 to $90 per barrel. A narrower range is from $72.50 to $82.50 per barrel. The wider range has shifted downward by $5 per barrel. And the narrower range has also shifted down.

This past month has been eventful. After the monthly employment report where job growth was softer than expected, markets reacted by dropping a few percent and increasing volatility. Some option traders got hurt because of the increased volatility.

And then almost as fast as markets reacted to the downside, markets recovered with more market data that suggested the economy was not cooling as quickly as feared and employment was still at reasonable levels. Furthermore, according to the CME Fed Watch Tool, rates are expected to drop either 25 or 50 basis points at the next Fed meeting in mid-September. A basis point is one-hundredth of a percent. Nonetheless, many believe that the US economy is slowing.

September and October are typically shoulder months for oil demand. The summer driving season is over, and the winter heating season has yet to arrive. Furthermore, OPEC+ has discussed reducing its voluntary cuts.

John Kemp from Reuters wrote an insightful article “OPEC+ faces moment of truth on planned output increase.”

LONDON, Aug 22 (Reuters) – In the next few weeks, Saudi Arabia and its OPEC+ allies must take a delicate decision about whether to proceed with planned production increases from October, or postpone them because of an uncertain economic outlook.

The recent slides in front-month Brent futures prices, calendar spreads and refinery margins, amid concerns about the outlook for petroleum consumption, have dramatized the danger of getting it wrong.

Boosting production despite downward revisions to consumption growth and a continued output increases from rivals in the United States, Canada, Brazil and Guyana risks another accumulation of inventories and slump in prices.

In addition to his commentary, Kemp provides several graphs with his article.

Amena Bakr provided helpful commentary in a thread on X where she commented about OPEC+’s compliance.

Thread: Let's discuss the new compensation schedule announced by Iraq and Kazakhstan. This move signals the group's unwavering commitment to the Opec+ pact. But this time, there's more to the story that suggests….’this time should be different’… Here's why: #OOTT #Opec

— Amena Bakr (@Amena__Bakr) August 23, 2024

Gary Ross also pointed out that some members, notably UAE, have been overproducing:

Amena does great work! But I must point out both have maintenance in 4Q so they r not really dedicated to comply. The elephant in the room is the UAE who has been way overproducing. While they too have maintenance in 4Q there is no way they can make up for huge overproduction https://t.co/OE1rBQPu3f

— Dr. Gary N. Ross (@kingofcrude) August 24, 2024

The New York Times reported in its article “In a Region on Edge, Israel and Hezbollah Launch Major Attacks on Each Other” (subscription required) that both sides were deescalating, at least for now.

Amid fears of an all-out war between Israel and Hezbollah forces in Lebanon, the two sides on Sunday mounted the biggest round of cross-border strikes since the war in Gaza began, with Israel bombing dozens of sites in a pre-emptive attack, and Hezbollah launching hundreds of rockets and drones.

Within hours, both sides appeared to de-escalate, at least temporarily, but signaled that the violence and dangerous tensions could continue. Hezbollah said its operation, vengeance for the Israeli assassination of a senior commander, had “finished for the day,” but left open the possibility of further action. Prime Minister Benjamin Netanyahu of Israel said that “what happened today is not the final word.”

For weeks, Israelis have waited in trepidation for a major attack promised by Hezbollah in retaliation for the airstrike last month in a suburb of Beirut that killed one of its leaders, Fuad Shukr. Iran, which backs both Hezbollah and Hamas, has also vowed retribution for the killing of Ismail Haniyeh, the Hamas political leader, on a visit to Tehran, hours after Mr. Shukr was killed, though it appears to have put that plan on hold.

While some believe the upcoming US election may be influencing prices, I am not among them. And once the election is over, I am not even certain how oil will react to a victory of either party.

As we can see, there are a lot of uncertainties, which are always true, and a lot of crosscurrents. My logic in lowering my price expectations is that the world seems adequately supplied with oil, oil prices did not spike in the latter part of summer as some suggested, and the oil market is entering into its shoulder season. I expect OPEC+ to moderate or delay its unwinding of voluntary cuts if Brent prices remain in the $70s per barrel.