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Oil Update—June 2023

For July, I am maintaining my June forecast for West Texas Intermediate (WTI) oil to range between $65 and $85 per barrel. As I write this blog entry on June 30, WTI is about $70.50 per barrel.

Once again, I had expected stronger prices. Some of the pundits that I follow expected that once the debt ceiling crisis was past, oil prices would rise. Some even stated that OPEC+ did not need to cut further at their early June meeting. Once the debt ceiling issue had passed and even though the Saudis announced a cut of a million barrels per day for July, oil prices still stagnated. One can only imagine prices if the Saudis had not cut.

The EIA revised its US demand for April upward based on monthly data. Below is a back-and-forth discussion between zerohedge and Javier Blas from Bloomberg.

Javier Blas wrote an article on May 16, 2023, “The Oil Market’s Real Weakness Is Supply, Not Demand” (subscription may be required), where he stated the following:

Is the extra supply from Russia, Venezuela and Iran a sign that the Western sanctions aren’t working? No. It’s a sign the sanctions prioritize keeping the oil market well supplied, even if that means that Moscow, Tehran and Caracas can sell oil. Ignore Western politicians talking about using sanctions to cripple rogue petro-dictators; what they want is to cripple inflation. For now, the strategy has worked. It remains to be seen if it will survive the summer, when oil demand growth is likely to accelerate.

Strong supply from Russia and Iran, China’s tepid recovery, and likely higher interest rates all weigh on oil prices. The US no longer tapping the strategic petroleum reserve and the Saudis seemingly determined to strengthen the physical market should, at a minimum, keep oil prices steady.

A June 29 Bloomberg article “Brent Oil Set for Record Run of Quarterly Losses on High Supply” (subscription may be required) states the following:

The outlook for the second half is mixed. Some analysts have forecast that the market will tighten, in part due to the end of seasonal maintenance. Yet US Federal Reserve Chair Jerome Powell and some of his peers have said more interest-rate increases are likely, which would drag on energy consumption.

“We fear that market apathy and lack of risk deployment will compound further if the global physical market does not tighten,” Royal Bank of Canada analysts Michael Tran and Helima Croft wrote in a note. “This could end up being a lost year for the oil market as risk remains on the sidelines.”

In the video accompanying the above article, Amrita Sen of Energy Aspects worries that sovereigns, perhaps PEMEX of Mexico, may hedge its output. When sovereigns go to the market to hedge, that puts downward pressure on oil prices.

Regarding the recent developments in Russia, I am ignoring them because I do not believe they will affect oil prices.

My own bias is that prices should stabilize or move higher from here. My bullishness has been wrong so far this year. So I look forward to seeing how July unfolds.

I hope everyone enjoys a great start to their summer vacation.

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