After a volatile June, July brought calmer oil markets, with West Texas Intermediate (WTI) prices holding between $60 and $70 per barrel—my expected range for August as well. In early July, the eight voluntary OPEC+ members increased their production limits by roughly 550,000 barrels per day. I expect these members to announce another 550,000 barrels per day increase in early August.
I am curious how oil markets will react after Labor Day, when the US driving season and Middle East air conditioning demand taper off. Recent production increases by the voluntary OPEC+ nations were partially absorbed by their heightened air conditioning needs. Eric Nuttall and Paul Sankey, in recent YouTube videos, express caution about oil’s fourth-quarter outlook.
On July 21, The Wall Street Journal published “How China Curbed Its Oil Addiction—and Blunted a U.S. Pressure Point.”
BEIJING—China’s thirst for oil drove global demand for decades. Now a government campaign to curb that addiction is nearing a milestone, with national consumption expected to peak by 2027, then begin to fall.
Chinese officials have long worried that the U.S. and its allies could hamstring the nation’s economy by choking off its supply of foreign oil. So China has poured hundreds of billions of dollars into weaning itself off the imported stuff by reviving domestic production and swiftly building the world’s leading electric-vehicle industry.
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Across China, fleets of gas-guzzling Volkswagen and Hyundai taxicabs are being replaced by electric models designed and produced locally. Last year, nearly half of passenger vehicles sold in the country were either all-electrics or plug-in hybrids, compared with 6% in 2020.
I am skeptical of China’s oil demand peaking by 2027. Its weakened economy over recent years has curbed consumption, with renewables also displacing oil. As China’s economy recovers, I expect rising energy needs to drive increased oil use. China’s trajectory is key to oil’s long-term outlook, but traders do not expect a major impact this year.
Disclosure: Short strangle (short calls and short puts) on WTI futures.