Specious Argument

I expect West Texas intermediate oil to range between $67.50 and $77.50 per barrel for July. My June forecast range was five dollars per barrel lower. As we have seen, prices have gone higher than I anticipated.

The world economy continues to grow, and there is growing optimism for the rest of the year. On the other hand, the Delta variant warrants careful monitoring because it has the potential to slow the progress. Because Iran is building its inventories on the expectation that a deal will eventually be reached, investors and traders need to monitor the nuclear negotiations. And with price of oil above $70 per barrel, there may be some investors with large gains who may choose to sell their positions.

John Kemp, a Senior Market Analyst for Reuters, wrote in an article titled “COLUMN-Falling U.S. crude stocks draw hedge fund attention: Kemp – Reuters News” the following:

Investors have not been this bullish since before the coronavirus outbreak spread worldwide in early 2020 and prior to that when the U.S./China trade war intensified in late 2018.

Last week saw small sales of NYMEX and ICE WTI (-6 million barrels), Brent (-3 million) and European gas oil (-8 million) but purchases of U.S. gasoline (+8 million) and U.S. diesel (+6 million).

In WTI, bullish long positions outnumbered bearish shorts by a ratio of more than 11:1, compared with a ratio of 4:1 in Brent (https://tmsnrt.rs/2SDhzLO).

I encourage you to view Kemp’s information referenced by the prior link.

As I write this article, WTI is trading at $73.46, and I believe there is more risk to the upside of my range than to the downside. That said, as prices rise, there will be more pressure on OPEC+ to increase exports.

On Thursday, July 1, there will be several meetings between OPEC+ countries and their technical committees. Investors and traders will gain more clarity in a few days.

With oil prices well above $60 per barrel, I am surprised by the low prices of oil equities. Even with ESG concerns, I would have expected higher prices by now.

In general, I remain bullish on oil and oil equities as the world continues to make progress against COVID-19.

I am increasing my West Texas Intermediate oil forecast for June by $2.50 per barrel to range between $62.50 to $72.50. My May forecast was $60 to $70 per barrel.

Although US vaccinations have slowed, people continue to receive vaccinations, the US will be providing unneeded vaccines to global regions, and more regions are reopening. As I stated last month, as we emerge from the pandemic with the easing of curbs and restrictions, people are going to consume more oil by traveling and meeting with friends and family. People are anxious to resume a more normal lifestyle.

There have been a lot of crosscurrents recently with court decisions and shareholder activists. I expect more of the same as the ESG movement gathers even more strength. My own view is that the ESG movement will damp needed investment and may result in higher oil prices over the short term of the next few years. Furthermore, analysts are trying to gauge when Iran may legitimately reenter the market and its effect. While no one knows with certainty what the resultant effects may be, my intuitive guess is that OPEC+ will help moderate the effects of its reentry and the market will be able to accommodate the extra supply.

Just like last month, I continue to expect that prices should continue to strengthen as countries around the globe make progress against COVID-19.

I am keeping my April West Texas Intermediate oil price forecast to range between $60 to $70 per barrel for May 2021.

As I expected, oil prices rose throughout April. As I am composing this post, WTI is near $65 per barrel.

Although the US is doing well with its vaccination program, some other countries are still struggling. I hope, though, that they will make considerable progress soon. None of us is safe until all of us are safe.

As we emerge from the pandemic with the easing of curbs and restrictions, people are going to consume more oil by traveling and meeting with friends and family. People are anxious to resume a more normal lifestyle.

The Financial Post article “Goldman sees commodities rallying over next six months on strong demand” suggests that Brent and WTI may hit $80 and $77, respectively, within six months. While I am bullish on oil prices, I am not sure if I am that bullish. Six months, however, is a long time, and I may increase my forecasts as we progress through the summer months.

U.S. bank Goldman Sachs expects commodities to rally another 13.5% over the next six months on a worldwide reversal of coronavirus curbs, lower interest rates and a weaker dollar, its commodities research team said on Wednesday.

The bank now sees Brent prices rising to $80 a barrel and U.S. West Texas Intermediate (WTI) prices to $77 a barrel over the six month period.

“We expect the biggest jump in oil demand ever, a 5.2 million barrels per day (bpd) rise over the next six months,” Goldman said, citing acceleration of vaccinations in Europe and an unleashing of pent-up travel demand.

OPEC+ has shown strong cohesion and discipline, and I expect that behavior to continue. Its next meeting is in early June.

In summary, prices should continue to strengthen as countries around the globe make progress against COVID-19. Goldman Sachs believes that Brent may reach $80 within six months. While I am optimistic that oil prices will go higher, I will reassess my forecast each month.

I hope everyone remains safe and well.

I am increasing my March West Texas Intermediate oil price forecast by $2.50 to range between $60 to $70 per barrel for April 2021.

Last month was a particularly volatile month. Oil prices fell below and rose above, at least on an intraday basis, my March forecast of $57.50 and $67.50. And in the last few days of trading, oil prices have been bouncing around between $57.50 to $61 per barrel. I would not be surprised if that pattern continues into early April.

But as time marches forward, I continue to expect that prices will move higher. As vaccinations increase and warmer weather encourages people to spend more time outdoors, the number of COVID-19 cases should at least stabilize, if not decrease, and people will likely grow increasingly confident of the future where they begin making plans to travel.

COVID-19 cases are still a concern. This past weekend, the Financial Times (subscription required) ran an article “Europe warns hospitals at ‘breaking point’ as third Covid wave hits” where several countries, including Germany, Poland, and France, are struggling to contain the latest outbreak.

European governments have warned that their hospitals are at risk of being overwhelmed by Covid-19 cases as leaders struggle to get a grip on the pandemic after a week of ill-conceived lockdown measures and recriminations over the EU’s slow vaccine rollout.

German health authorities on Friday warned that the third wave of coronavirus infections could be the worst, pushing intensive care units to “breaking point”.

Lothar Wieler, head of the Robert Koch Institute, the government agency leading the fight against the pandemic, said stopping the wave was impossible but he called on people to reduce contacts to prevent spiralling infection rates.

So the path forward will not be smooth sailing. Although progress will be made, setbacks are bound to occur. That notwithstanding, countries in the northern hemisphere are likely to be in a better position a month from now than they are today.

Do not forget, too, that the markets are forward looking. So even if the progress is marginal, the general public and investors will be looking toward summer when they expect people to be more active.

OPEC+ has its meeting on April Fool’s Day. While I expect it to roll over its current quotas, there is always the potential for a surprise.

Wrapping up, while I would not be shocked to see some weakness in prices in early April, I expect prices to firm as the month progresses. If countries make significant progress in vaccinating their populations, then higher prices may be warranted toward the end of April.