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Oil Update—February 2023

For March, I am extending my February forecast for Texas Intermediate (WTI) oil to continue to range between $70 to $90 per barrel. Oil closed near $75.50 on Monday, February 27, 2023. As we move from refinery maintenance season toward driving season, oil prices should begin to firm up.

When I wrote about a month ago, the S&P 500 Total Return Index, which includes dividends, was up about 6.1 percent year to date. As I write, it is up about 4.0 percent. Just like last month, I remain concerned that the stock market may still be too high. Some of last month’s bullish sentiment has dissipated. And if there is a market correction, then oil prices are likely to succumb to the gravitational pull of lower prices. More likely, however, oil prices during March will remain around $80 per barrel.

Looking at the CME FedWatch Tool, we see the market expects higher rates for longer. For example, the probability that the target rate meets or is greater than 525-550 basis points for the December 13, 2023, meeting exceeds 50 percent. Some argue that stock prices have not fully factored in these higher rates and lower margins. Because I remain cautious on the stock market, I also remain cautious on oil prices.

As driving season approaches, we may have more clarity on interest rates and the general economy, and as long as the economy remains healthy, oil prices should strengthen.

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