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Oil Update—July 2023

For August, I am raising my July forecast for West Texas Intermediate (WTI) oil by $5 per barrel to range between $70 and $90 per barrel.

The voluntary OPEC+ cuts by Saudi Arabia and Russia have tightened the physical markets and raised the price of oil. And, according to an article from Javias Blas of Bloomberg, “The Harsh Truth: We’re Using More Oil Than Ever” (subscription required), oil demand remains strong. A quote from his article is as follows:

So far, we have only partial numbers for May and June, and directional evidence for July. Extrapolating from earlier this year, the fresh information, including real-time traffic congestion in multiple countries and global airline travel, suggests that global oil demand went above the pre-Covid peak recently, even when considering the margin of error.

We do have much better information for the January-to-April period. Global oil demand averaged 100.8 million barrels a day during the first four months of 2023, above the same period in 2019, when the average was 99.9 million, according to my calculations based on monthly data from the IEA.

That said, according to the Patrick De Haan, the GasBuddyGuy on X, the peak gasoline demand for summer is likely behind us.

OPEC+ is meeting in early August. I anticipate Saudi Arabia will continue its voluntary cut into September and otherwise do not expect any changes. If it decides to maintain its cut, that should help support oil during the shoulder season. The oil shoulder season is typically from after Labor Day until the end of October.

The S&P 500 has been strong over the past few weeks, surprising a lot of stock market pundits. If the market should correct after this run, then I would expect oil to correct along with the market.

Although North American markets have been strong, Europe is weaker. And China has surprised many, including me, by having had a weak year so far.

The New York Times published an informative podcast on China titled “China’s Economic Rebound Hits a Wall.” I encourage you to listen to it: Apple Podcasts; Google Podcasts; and Spotify.

The Financial Times published an article “Work dries up for US consultancies in China after national security raids” (subscription required), which complements the New York Times podcast.

Top US consultancies are struggling to attract business in China as Beijing’s national security raids scare away local clients and global investors pull back from dealmaking in the country.

Management consultancy Bain is telling new China hires to wait until as late as 2025 to start their jobs, while roughly half of McKinsey staff do not have paid client projects to work on. Boston Consulting Group’s China team has been holding strategy sessions on how to revive its flagging business, according to half a dozen people close to the firms.

Just after publishing my blog entry last month, I watched a YouTube video titled “The Chinese Yuan ‘Doom Loop’ & The Oil-Dollar Wrecking Ball with Michaeal Kao and Alexander Stahel.” Watching my Twitter, now X, feed, these two individuals have been negative to flat on oil prices for at least the last six months. I always found their commentary frustrating because it was counter to my more bullish outlook. The reality is that they were correct. So it is always good to pay attention to those who espouse a different viewpoint or outlook. Even though this past month their ursine outlook has not proven itself correct, you should find value in their thinking. And I would encourage you to follow them on X: Michaeal Kao and Alexander Stahel.

In summary, although there remain lots of crosscurrents that are affecting oil, I am expecting WTI prices to range between $70 and $90 per barrel for August.

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