Specious Argument

My expectation for April West Texas Intermediate (WTI) oil prices are slightly less than they were for January and February. I reduced the range endpoints by $2.50 per barrel to range between $65 to $75 per barrel. February WTI prices pierced my lower end of $67.50 during the markets squall in mid-March.

Last month, I mentioned lack of consumer confidence. Consumer confidence is likely to continue to be weak as the US administration announces new tariffs on April 2 and countries respond. Uncertainty around the globe is likely to increase, and consumers are likely to be cautious until they understand how the new environment affects them directly.

During the past two months, oil stocks have been surprisingly strong even though oil prices have been moderate. Barron’s Magazine noted the same observation in a recent article from March 27 “An Oil Stock Riding the ‘Dune Express’ to Success in an Uncertain Energy Rally” (subscription required).

The energy sector shouldn’t be doing this well. It’s the best-performing sector in the S&P 500 this year, despite crude prices sliding a bit. The return of President Trump to the White House has boosted hopes that the federal government will continue to push for increased U.S. oil production and less on renewable sources of power, something that could lead to a glut of unused oil—and lower prices still. Perhaps the markets are sniffing out something the headlines aren’t—or maybe the energy sector is just getting ahead of itself.

My guess—and it is only a guess—is that investors have become more cautious on the high-flying magnificent seven stocks and have allocated some of their capital to solid stocks with higher paying dividends and with reasonable price-to-earnings multiples. Unfortunately, there is no way to know with any confidence.

Once again, I present Eric Nuttall’s commentary. I agree with most of what he says with the exception that I am not quite as bullish as he is on oil prices, at least not in the next month.

Sanctions against Iran have largely been ineffective in the past, and I expect that they will be ineffective going forward. As mentioned, tariffs are likely to introduce more caution and uncertainty around the globe. For the next month, I expect oil prices to remain soft.

The lower end of my price target at $65 is if the markets come under significant duress. And $75 is if the new tariffs are largely irrelevant, and everyone is happy again.

In his comments, Nuttall mentioned the Dallas Fed. It is interesting to note that the average expectation for oil prices six months from now is $68 and one year from now is $70.

Another page worth reviewing is the Comments tab. Here are three comments from that page:

• The administration’s tariffs immediately increased the cost of our casing and tubing by 25 percent even though inventory costs our pipe brokers less. U.S. tubular manufacturers immediately raised their prices to reflect the anticipated tariffs on steel. The threat of $50 oil prices by the administration has caused our firm to reduce its 2025 and 2026 capital expenditures. “Drill, baby, drill” does not work with $50 per barrel oil. Rigs will get dropped, employment in the oil industry will decrease, and U.S. oil production will decline as it did during COVID-19.
• I have never felt more uncertainty about our business in my entire 40-plus-year career.
• Uncertainty around everything has sharply risen during the past quarter. Planning for new development is extremely difficult right now due to the uncertainty around steel-based products. Oil prices feel incredibly unstable, and it’s hard to gauge whether prices will be in the $50s per barrel or $70s per barrel. Combined, our ability to plan operations for any meaningful amount of time in the future has been severely diminished.

Like I said, uncertainty is on the rise until there is more clarity regarding tariffs.

In summary, my expectation for WTI oil prices for April is $65 to $75 per barrel.

Once again, my expectation for March West Texas Intermediate (WTI) oil prices are the same as they were for January and February—that is, $67.50 to $77.50 per barrel. Prices stayed within my expected range during February.

I do not have many comments to make this month as not much has changed. While some may be bullish, I am more cautious because of consumer sentiment. In fact, on February 25, the Conference Board issued a press release “US Consumer Confidence Dropped Sharply in February” that stated:

The Conference Board Consumer Confidence Index ® declined by 7.0 points in February to 98.3 (1985=100). The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell 3.4 points to 136.5. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions— dropped 9.3 points to 72.9. For the first time since June 2024, the Expectations Index was below the threshold of 80 that usually signals a recession ahead. The cutoff date for preliminary results was February 19, 2025.

With tariff uncertainty and government cutbacks, Americans are feeling cautious. Furthermore, Europe is undergoing geopolitical adjustments. Because of poor consumer sentiment, I do not expect WTI prices to exceed my expected range for the next month.

Although Eric Nuttall of Ninepoint Partners is not making a call for March, he does provide his bullish take in this half-hour YouTube “The Macro Setup for Oil & Gas Has Never Been More Bullish | Ninepoint Energy Market Update.”

He makes a strong case for bullish oil prices and remaining invested in oil and gas stocks.

A February 27 Reuters article “Sanctions, tariffs make OPEC+ hesitant on April oil hike, sources say” suggests that no decision whether to increase production has been reached.

LONDON/MOSCOW, Feb 27 (Reuters) – OPEC+ is debating whether to raise oil output in April as planned or freeze it as its members struggle to read the global supply picture because of fresh U.S. sanctions on Venezuela, Iran and Russia, eight OPEC+ sources said.

OPEC+ usually confirms its supply policy one month in advance to have time to allocate crude to buyers. Hence, the group has until March 5-7 to finalise its April production but no consensus has emerged so far, some of the sources said.

Given the soft outlook and geopolitical uncertainty, I would be surprised if OPEC+ decided to raise production.

I expect that oil prices should be stable for the month of March.

My expectations for February 2025 West Texas Intermediate (WTI) oil prices are the same as they were for January 2025—that is, $67.50 to $77.50 per barrel. For most of January, prices remained below $77.50. Just after the US announced additional sanctions against Russia, prices spiked temporarily to about $77.50, with some traders believing that prices were headed to $85 per barrel or higher. That did not happen.

Aside from the additional Russian sanctions and the change in the US administration, there have not been a lot of new developments. That is why I am keeping my forecast the same as it was last month.

There are bullish and bearish views about the future price of oil. On the bearish side, Javier Blas from Bloomberg wrote the following in his January 28 article (subscription required) “OPEC+ Will Buckle Under Trump’s Pressure”:

For his part, I don’t think Trump is going for a kill. His negotiating style is simple: Aim high and keep pushing. His administration is full of experienced oil hands who know that sub-$50-a-barrel would hurt the American petroleum industry as much as plus-$100 slows the economy. Thus, Trump is likely to content himself with somewhat lower crude prices of, say, $60 to $70 a barrel. For guidance, remember that the first time Trump posted on social media about the cartel during his first term was in April 2018, when Brent was nearing $75 a barrel.

What’s clear is that Trump sees $80 a barrel — the price level of Brent crude around the time of his inauguration — as too high. Rightly or wrongly, he believes that the price of oil is a benchmark of economic competence, where up is bad, down is good. In his second term as president, lower crude prices will play a key role in offsetting any impact of higher tariffs on inflation. Reduced oil prices are, in Trump’s world, also crucial for foreign policy, including reaching a deal to end the war in Ukraine.

My own belief is that OPEC+ will not necessarily roll over and comply with the administration’s desire for lower prices in the range of $60 to $70 a barrel for Brent. As a reminder, Brent typically trades for about $2 to $4 higher than WTI. So I find Blas’s outlook a tad bearish.

On the bullish side, Eric Nuttall just released a new YouTube video “Energy Market Shock: AI, Natural Gas, and Canadian Oil Tariff Fears | Ninepoint Energy Market Update” where he expresses his bullish outlook. As I have indicated before in prior posts, I am not as bullish as Nuttall.

As I compose this post in the evening on Thursday, January 30, WTI is trading for about $73.30 a barrel. President Trump has indicated that tariffs will be imposed against Mexico and Canda on February 1, and he has stated he will probably decide this evening whether to impose tariffs on their oil sectors.

US President Donald Trump says he will go ahead imposing a 25% tariff on Canada and Mexico from Feb 1.

Trump added he’s still mulling whether the tariffs will hit oil too. “We may or may not, we’re going to make that determination probably tonight” based on oil prices.#OOTT

— Javier Blas (@JavierBlas) January 30, 2025

Depending on what President Trump does and how the markets react, there may be some near-term volatility. I expect, however, that prices will remain within my expected range of $67.50 to $77.50 per barrel.

My expectations for January 2025 West Texas Intermediate (WTI) oil prices are nearly the same as they were for December 2024. I have raised my expectations slightly by $2.50 per barrel to $67.50 to $77.50. Although I expect WTI to remain below $75 for most of the month, I have raised my upper limit slightly because WTI has been acting strong these past few days and is currently about $71.85 as I write this article.

As expected, WTI prices were in the high $60s or low $70s for the month of December. There have been no significant changes. Consequently, I have not changed my outlook very much.

Going into 2025, I am cautious. The first quarter of any year is typically more challenging after the high winter demand period that is followed by the refinery maintenance season. The new US administration may also bring about changes that affect oil prices.

Eric Nuttall and Amrita Sen, in a forty-minute YouTube video, discussed OPEC, oil demand, and Canada’s role. Both Nuttall and Sen tend to be more bullish than the people I follow closely. That said, it is always helpful to keep an open mind and consider the viewpoints of others, both bulls and bears.

I want to wish everyone a Happy, Healthy, and Prosperous New Year!