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Oil Update—June 2021

I expect West Texas intermediate oil to range between $67.50 and $77.50 per barrel for July. My June forecast range was five dollars per barrel lower. As we have seen, prices have gone higher than I anticipated.

The world economy continues to grow, and there is growing optimism for the rest of the year. On the other hand, the Delta variant warrants careful monitoring because it has the potential to slow the progress. Because Iran is building its inventories on the expectation that a deal will eventually be reached, investors and traders need to monitor the nuclear negotiations. And with price of oil above $70 per barrel, there may be some investors with large gains who may choose to sell their positions.

John Kemp, a Senior Market Analyst for Reuters, wrote in an article titled “COLUMN-Falling U.S. crude stocks draw hedge fund attention: Kemp – Reuters News” the following:

Investors have not been this bullish since before the coronavirus outbreak spread worldwide in early 2020 and prior to that when the U.S./China trade war intensified in late 2018.

Last week saw small sales of NYMEX and ICE WTI (-6 million barrels), Brent (-3 million) and European gas oil (-8 million) but purchases of U.S. gasoline (+8 million) and U.S. diesel (+6 million).

In WTI, bullish long positions outnumbered bearish shorts by a ratio of more than 11:1, compared with a ratio of 4:1 in Brent (https://tmsnrt.rs/2SDhzLO).

I encourage you to view Kemp’s information referenced by the prior link.

As I write this article, WTI is trading at $73.46, and I believe there is more risk to the upside of my range than to the downside. That said, as prices rise, there will be more pressure on OPEC+ to increase exports.

On Thursday, July 1, there will be several meetings between OPEC+ countries and their technical committees. Investors and traders will gain more clarity in a few days.

With oil prices well above $60 per barrel, I am surprised by the low prices of oil equities. Even with ESG concerns, I would have expected higher prices by now.

In general, I remain bullish on oil and oil equities as the world continues to make progress against COVID-19.

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