A month ago, I forecasted West Texas Intermediate (WTI) to range between $72.50 and $82.50 per barrel for January. WTI has exceeded the upper end of my range for a substantial part of January. So for February, I am increasing my forecast by ten dollars per barrel to range between $82.50 to $92.50 per barrel.
Oil inventories remain tight and OPEC+ has not been keeping up with its pledges of 400 thousand barrel per day increases every month. As the northern hemisphere swings toward spring and summer, I expect even more pressure on oil.
As mentioned last month, Omicron is still an issue but appears to be a fading issue, and it is not likely a significant factor in looking at oil prices for next month. The Ukraine situation is a significant factor, though. I suspect that some portion of increased oil prices is the result of increased geopolitical tensions. If tensions escalate further, I expect oil prices to either remain stable or go higher. And if there is an invasion of Ukraine, I expect oil prices to rise significantly higher, perhaps to $100 per barrel. Of course, I hope an invasion does not happen. Aside from direct human suffering, there are more than enough domestic and global challenges that need to be addressed by all of us without having more divisions and distrust.
On the flip side, Iran negotiations are heating up. Should the US and Iran reach an agreement allowing Iran to export its oil, that would negatively affect oil prices, at least in the short term. Many suspect that all along Iran has been exporting significant amounts of oil to China. It is difficult to predict how much additional Iranian oil would be exported, how much the additional volumes would affect oil prices, and for how long.
In last month’s post, I mentioned that all negotiations are fraught with high degrees of uncertainty. Although many pundits opine with great certainty, I am not one of them. I do not have sufficient historical and detailed knowledge of the issues. Although I have my own personal thoughts and opinions, even I do not place much weight on them and am willing to radically revise my thoughts and opinions in a heartbeat.
I am surprised by the market turbulence apparently caused by the upcoming Fed rate increases. While I expected some movement, I thought the market would absorb the news with less volatility.
My forecasted range of $82.50 to $92.50 per barrel is premised on maintaining the status quo. If the Iranian negotiations are fruitful or Ukraine is invaded or a political compromise is reached, then my forecasted range is no longer applicable. Like everyone else, I am watching and reading as much as possible.