Last month, I forecast that West Texas Intermediate would range between $65 and $75 for November. Nearing month end with WTI at about $50, I was wrong.
Some of the factors that led to the sharp oil price decline are as follows: unexpected waivers granted for purchase of Iranian crude; worries about global growth; continuing trade concerns between China and the United States; political pressure from President Trump, especially in light of the killing of Jamal Khashoggi; supply growth from the Permian basin; Russia and Saudi Arabia producing at near record volumes; and a strong US dollar. How much each of the factors contributed is unknown and open to debate.
On December 6, OPEC plus Russia will meet in Vienna to discuss the current situation and determine whether and how significant any cuts might be. A November 23 article in the Wall Street Journal titled “Saudis Mull Quiet Cuts to OPEC Production” (subscription required) lays out a possible scenario where cuts are made without drawing undue and unwanted attention.
Saudi Arabia and OPEC are inching toward a compromise between pleasing the U.S. with policies that won’t lead to price spikes and throttling back the flow of its oil to rebalance oversupplied global markets.
The solution the cartel is considering: A production cut that doesn’t look like a production cut.
Under such a scenario, the Organization of the Petroleum Exporting Countries would announce plans to retain current output targets, first set in 2016. That move would imply a production pullback because Saudi Arabia is overproducing by nearly 1 million barrels a day, according to people familiar with the matter.
Because oil prices have fallen so far, I am inclined to think that prices are at or very near the bottom. Therefore, I estimate that the WTI price over the next four weeks will range between $50 and $65. This range is wider than my usual ten dollars because there potentially could be a snapback resulting from the OPEC meeting and a general rally into yearend.
As an aside, for those who have been following horrific details surrounding the murder of Jamal Khashoggi, the following Wall Street Journal article is worth reading: “Saudi Arabia Accused of Torturing Women’s-Rights Activists in Widening Crackdown on Dissent” (subscription required).