Specious Argument

After another turbulent, challenging month for West Texas Intermediate (WTI), my expectations for WTI prices in June are reduced by $2.50 per barrel. I expect WTI to range between $57.50 to $67.50 per barrel.

Tariff and geopolitical issues as well as the “voluntary eight” of the OPEC+ reducing their production cutbacks continued to stress oil prices in April. These concerns will not be resolved in May. The voluntary eight OPEC+ countries that have reduced their production cutbacks are Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman. There remain concerns that Iraq and Kazakhstan are producing more than their quotas. As a consequence, in early June, many expect the voluntary eight members of OPEC+ to raise the production ceiling by another 411 thousand barrels per day. The reality is that because Middle East countries burn more oil to meet their cooling needs during the hot summer months, much of the increased production is never exported. In other words, OPEC+ exports during the hot summer months are largely unaffected by these production increases.

I do not have much confidence in my outlook because of the uncertainty surrounding the previously mentioned challenges. In this article, I will provide some of the sources that I relied upon to reach my outlook.

The Financial Times May 11 article “Saudi Aramco cuts its dividend by $10bn” (subscription required) gave me pause because oil companies are loathe to cut their dividends. When dividends are cut, it suggests an anticipation that current or worse conditions may exist for a while. Shareholders of companies rely upon dividends remaining the same or increasing and may flee from companies that reduce their dividends, thereby driving down share prices.

The world’s largest oil company’s net income dropped 5 per cent from a year earlier to $26bn. Its average realised oil price was $76.30 a barrel, compared with $83 a barrel in the same quarter last year.

While the performance was better than that of some of its peers, including BP and Shell, whose first-quarter profits halved and fell by 28 per cent respectively, Aramco cut its total dividend to $21.4bn from $31bn in the final quarter of last year.

There were two important articles regarding peak shale. The Wall Street Journal May 17 article “U.S. Drillers Say Peak Shale Has Arrived” (subscription required) suggests that shale production is challenged at these prices.

Drillers that made the U.S. the world’s top oil producer say they are hitting the brakes to weather a period of low crude prices and that the gusher has likely peaked. Some of the largest producers, including Diamondback Energy, recently told investors that they would be spending less this year and plan to drop rigs.

The U.S. is on track to see crude oil production modestly increase in 2025—in part because of growth in fields offshore—before declining next year by 1% to 13.33 million barrels a day, according to S&P Global Commodity Insights. That would mark the first year-on-year decrease in roughly a decade, outside the Covid-19 pandemic.

“We believe we are at a tipping point for U.S. oil production at current commodity prices,” Travis Stice, chief executive of Permian driller Diamondback, said in a letter to shareholders last week.

Next, the Financial Times May 25 article “Oil chiefs warn of end to US shale boom” (subscription required) also suggests shale production is challenged.

“We’re on high alert at this point,” Clay Gaspar, chief executive officer at Devon Energy in Oklahoma City, told investors this month. “Everything is on the table as we move into a more distressed environment.”

Oil output will fall by 1.1 per cent next year to 13.3mn barrels a day, according to S&P Global Commodity Insights, as prolific shale drillers that made the US the world’s biggest producer idle rigs in the face of prices driven lower by fears of oversupply and Trump’s trade war.

That would mark the first annual decline in a decade, excluding the 2020 pandemic when collapsing demand sent oil prices below zero and triggered widespread bankruptcies across states such as Texas and North Dakota.

If shale production plateaus or recedes slightly, then that is bullish for oil prices because there is less oil on the market.

With all turbulence, however, there are some economic concerns.

Rising delinquent credit card and car payments show that consumers are struggling. Once tariffs hit, consumers are likely to be even more stressed.

The Bloomberg May 22 article “OPEC+ Discusses Another Super-Sized Output Hike for July” (subscription required) suggests that another large increase in the production ceiling may be decided in early June.

OPEC+ members are discussing making a third consecutive oil production surge in July, to be decided at the group’s meeting in just over a week, delegates said.

An output hike of 411,000 barrels a day for July — triple the amount initially planned — is among options under discussion, although no final agreement has yet been reached, said the delegates, asking not to be named because the information is private. A final decision is due to be taken at a gathering on June 1.

The cartel has helped sink crude prices since announcing 411,000-barrel hikes for May and June — equivalent to about 1% of current OPEC+ output — in a historic break with years of defending oil markets. Oil made a fresh plunge on Thursday, dropping 0.9% to $64.31 a barrel as of 9:13 a.m. in London.

This is one of the rare times that I am more bullish on oil prices than is Eric Nuttall. Below is a thirteen-minute YouTube video by Nuttall.

Another fund manager that I follow is Josh Young. Below are two posts on X where he expresses his bullishness:

The short CNBC video is worth watching.

I am not as bullish as Josh because the economic backdrop is likely to contain any exuberance.

I follow people whose viewpoints are varied and keep an open mind because the oil price environment can be and often is extremely volatile.

Another person I like to follow on X is Dr. Anas Alhajji because he has an in-depth understanding of the oil market and is able to follow and correspond with folks in the Middle East. The following X post references a 90-minute YouTube video. If you want a deep dive into the crude markets, the video is worth watching.

The outlook is far from certain. There are well-respected fund managers who are either bearish or bullish. My own view tends to expect more of the same. While OPEC+ is unlikely to flood the oil market, Saudi Aramco’s dividend cut warrants attention. The global economy is constantly reacting to the latest developments by the US administration. And American consumers are showing signs of being stretched. All these factors lead me to believe that WTI prices are likely to remain with the range of $57.50 to $67.50 for the next month.

After a turbulent April, my expectations for West Texas Intermediate (WTI) oil prices in May are $5 less per barrel April. I expect WTI to range between $60 to $70 per barrel.

As we are all aware, April was a challenging month. Most investors expected OPEC+ to hold steady on production increases. Instead, it brought three months of production increases forward. And the US administration surprised investors with a harsher than expected set of tariff demands, especially against China. Many in the investment and business communities have commented that, although the tariffs themselves are detrimental to the business climate, the volatility and uncertainty is even worse. Because the business pages of major online newspapers have been filled with analysis and commentary about the tariffs and what they may mean for the US and global economies, I do not intend to belabor the issue here.

That said, Wall Street banks have cut their S&P 500 year-end targets. On April 18, when the S&P finished at 5,283, the Financial Times published “Wall Street slashes stock market forecasts amid Trump tariff fears” (subscription required) with the following chart:

A graph presented by the Financial Times showing prior and current S&P 500 target values.

These lower targets reflect anticipated diminished economic activity and profits. With less economic activity and potentially more oil output from OPEC+, oil prices are also expected to be lower.

In early May, I expect OPEC+ to once again increase production. In the strictest sense, it is not OPEC+ but rather the “voluntary eight” countries that had earlier reduced their production to now increase their production from current levels.

Some are attributing this increased production as punishment to those countries who have not honored their commitments to reduce production. I prefer Dr. Anas Alhajji’s explanation that the increased production level more easily allows the overproducers to meet their targets. If punishment or retribution were the goal, OPEC+ would take more drastic actions, as it has done in the past.

In the past few monthly updates, I have provided links to Eric Nuttall’s videos. He is more cautious on oil prices going into OPEC+’s decision. Here is his five-minute YouTube video:

Oil is always volatile. And it is especially volatile with so much uncertainty surrounding tariffs and other geopolitical issues.

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.