My forecast last month was too optimistic. I am lowering my prior forecast for West Texas Intermediate (WTI) oil price to range between $70 to $90 per barrel for December. This is a drop of $10 per barrel from last month. My typical monthly range is $20 wide. Although that range seems wide, sometimes it is not wide enough. If I were asked to narrow the range, I would provide a range of $70 to $80 per barrel. Because the oil prices did not jump after the announcement by OPEC+, I am less optimistic about much higher prices in December.
Earlier in the day, the Wall Street Journal featured an article “OPEC+ Agrees to Significant Oil-Production Cut” (subscription required).
OPEC+ agreed to a significant production cut of an additional million barrels a day, delegates said, in a move that will likely keep prices elevated amid the continuing conflict in the Middle East.
As part of the deal reached Thursday, Saudi Arabia also agreed to extend its cut of 1 million barrels a day that it announced in June.
Taken together, the moves are expected to stabilize prices at a moment when geopolitical tensions are high around the world and economic growth is slowing.
As I look back over the past year, I, along with many others, have been too optimistic. In early 2023, many thought that once the market got past the refinery maintenance season, prices would firm. That did not happen.
Then, as we approached the debt ceiling in June, many thought that once the debt ceiling issue was resolved, prices would go much higher. In fact, many were certain that oil prices in the second half of the year were going to go much higher. After the debt ceiling issue was resolved, oil prices continued to languish. The excuse then was that there was a lot of destocking because of higher interest rates.
Saudi Arabia and Russia cut production in the summer. Surely, that was a strong signal that any excesses in the market would be addressed, and oil prices were bound to go much higher. Oil prices did rise substantially into September and then drifted lower. In September, many thought oil prices would soon hit a $100 and stay at about that level or higher regardless of any macroeconomic concerns.
Now in late November, WTI prices are hovering around the mid $70s. There is no longer any talk of oil prices hitting $100 per barrel this year.
After OPEC+ made its announcement, oil prices fell. The oil market appears to be waiting to see proof that the voluntary cuts are made and that those cuts are having their intended effects upon inventory levels before boosting oil prices.
I am going to close this post with comments on X by Eric Nuttall, whom I greatly respect. If you click through to his comments on X, you will find a video link to his appearance on BNN Bloomberg.
"We remain bullish"…just not by as much as we were earlier this year. Why? We were right on 2 calls: global oil inventories reaching multi-year lows + demand vastly exceeding the ongoing bearish narrative (recession=demand destruction). What did we get wrong? The quantum of… pic.twitter.com/TZ5SqHwJ6e
— Eric Nuttall (@ericnuttall) November 30, 2023