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Oil Update—May 2024

My expectation for West Texas Intermediate (WTI) oil prices for June is unchanged from May. That is, WTI should range from $75 to $95 per barrel. A narrower range is from $77.50 to $87.50 per barrel. This is the third month in a row where my expectations have been unchanged.

As I compose this blog entry, WTI is hovering around $77.25 per barrel, which is slightly below my narrower range. I expect WTI prices to strengthen in June.
Over the past month, nothing material has changed. Concerns about China’s recovery and growth remain. The wars in the Middle East and in Ukraine also remain. The US central bank is still worried about inflation.

A couple of months ago when oil was higher, many of the oil cognoscenti were suggesting that OPEC+, when it meets in the next few days, may need to add more oil into the market. According to a Reuters new article on May 31 “OPEC+ working on complex production cut deal for 2024-2025, sources say,” some are now suggesting that a deeper cut cannot be ruled out:

LONDON, May 31 (Reuters) – OPEC+ is working on a complex deal to be agreed at its meeting on Sunday that will allow the group to extend some of its deep oil production cuts into 2025, three sources familiar with OPEC+ discussions said on Thursday.

OPEC+ has made a series of cuts since late 2022 amid rising output from the United States and other non-members, and worries over the demand outlook as major economies grapple with high interest rates to tame inflation.

“We would not entirely rule out a plot twist – in the form of a deeper cut – given (Saudi energy minister) Prince Abdulaziz’s (bin Salman) penchant for Hollywood twist endings,” said Helima Croft from RBC Capital Markets.

A May 31 Bloomberg article “Key Oil Ministers Head to Riyadh as OPEC+ Plans Change Again” (subscription required, though the article can be found from other free sources) stated that the cuts will be extended to yearend and possibly into 2025:

Major OPEC+ producers will gather in Riyadh this weekend to debate oil output cuts after the Saudi-led group revised its meeting plans for a second time.

Top officials from Kazakhstan, Russia, the United Arab Emirates and Kuwait are among those due to convene in the Saudi capital on Sunday, according to officials. They’ll discuss prolonging supply curbs to the end of this year — and potentially into 2025, said delegates, asking not to be named because the information was private.

My own personal view is that the cuts will be maintained to at least yearend with more emphasis on compliance with the voluntary cuts. As the northern hemisphere moves further into summer with the driving season in full swing, oil prices will strengthen.

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