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Oil Update—May 2018

Unlike my typical practice of giving my monthly oil price range forecast for West Texas Intermediate, for the coming month, I am not providing a range because the uncertainty is too great.

There are at least three major factors underlying the uncertainty. First, the magnitude of the decrease in Iranian oil exports due to new sanctions is unknown. I have read articles that suggest as little as two hundred thousand barrels per day and as much as one million five hundred thousand barrels per day. Second, Venezuela’s future oil production volumes remain uncertain. On May 23, the online Wall Street Journal article “Keep Your Eye on Venezuela’s Oil—Energy Journal” (subscription might be required) stated as follows:

Due to political and social unrest, Venezuela’s oil output slid around 23% over the course of last year, according to International Energy Agency figures.

And the collapse is picking up steam. Venezuelan crude output has dropped by an additional 200,000 barrels a day this year to stand at 1.42 million barrels a day, a 15-year low and a striking reversal of fortune for a country with the world’s largest oil reserves.

And third, OPEC and Russia have indicated that they plan to agree to increase production at their June 22 meeting. The volume and duration of their increase is unknown.

Because there are too many significant unknowns to make a reasonable estimate, I am taking a wait-and-see approach.

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