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Oil Update—December 2022

For January 2023, I am forecasting that West Texas Intermediate (WTI) will range between $70 to $90 per barrel. Oil closed near $80 on Friday, December 30, 2022.

Pierre Andurand, a famous hedge fund manager who specializes in energy derivates, posted a bullish six-part thread on Twitter beginning with the following tweet:

He then followed up with another shorter three-part thread starting here:

Using these initial tweets, I encourage you to read his two threads.

While Andurand is relatively sanguine on COVID developments in China, others are less certain or even pessimistic.

On December 29, the New York Times featured an article “How Bad Is China’s Covid Outbreak? It’s a Scientific Guessing Game” (subscription required)

But in early December, the government abruptly abandoned “zero Covid,” leaving the scientific community largely in the dark.

“Nobody, nobody has a clue,” said Siddharth Sridhar, a clinical virologist with a focus on emerging infectious diseases.

Predicting the path of the pandemic has always been difficult. Even in places like Britain with reliable data, forecasts have often been far off the mark. But scientists have generally used reported Covid deaths as a dependable barometer to determine the potential size of an outbreak.

The best I can do is to monitor the situation and react accordingly.

I chose the range $70 to $90 because at $70, the US may begin to refill its strategic petroleum reserve and many may be fearful that OPEC+ will take corrective action to tighten the oil markets, and because oil demand does not appear strong enough in the first few months of 2023 to push oil prices much higher than current levels.

As we enter 2023, I will be watching closely developments in China, the Fed and the global economy, how Russia reacts to the cap on its oil prices, and how OPEC+ responds to either surpluses or shortages of oil.

I want to wish everyone a happy, healthy, and prosperous New Year!

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