Specious Argument

For the next month, I have increased my West Texas Intermediate oil price forecast by $2.50 to range between $55 to $65 a barrel.

With phase one of the US-China trade deal now out of the way and OPEC+ announcing a cutback to production, oil prices rose slightly more than I expected, though still within the range I had set out last month. Throughout December, both the stock market and oil prices climbed higher. The question now is have equity and oil prices advanced too far, too fast. While I tend to think that both are ahead of themselves, I also realize that price momentum can go on for longer than most may anticipate. Now, I would like to see how the markets in general react in the New Year, especially after the strong 2019 stock market.

Overall, I expect WTI oil prices to range between $57.50 and $62.50 a barrel, though I have allowed more room on both ends to provide a $10 range.

To investors and traders, I extend my best wishes that this coming year and decade treat you well.

For the fifth straight month, I continue to expect West Texas Intermediate oil prices to range between $52.50 and $62.50.

With the expected announcement of the US-China phase-one trade deal and with the upcoming OPEC+ meeting on December 5 and 6, there is no point commenting on November’s events. These two upcoming events overshadow most everything else. Of course, the trade deal is not a sure thing, but recent comments in the press suggest that the two sides are very close. Various officials from OPEC+ keep shifting their positions, often day-by-day. I suspect that much of the recent commentary is posturing for negotiating leverage during the official meetings.

My general expectation is that oil will remain range bound between $52.50 and $62.50 for a while, with oil prices usually avoiding the top quartile of that range.

I am hoping that the phase-one trade deal is announced soon and that the OPEC+ meeting goes well without any negative surprises.

For the fourth straight month, I expect West Texas Intermediate oil prices to range between $52.50 and $62.50.

With all the uncertainties surrounding trade, global growth, and future oil supply and demand, oil prices remain reasonably volatile. The US-China trade war should become less severe after the mid-November meeting where both countries are expected to sign the first phase of a trade deal. With a little luck, there might be a resolution, or perhaps just more clarity, of the ongoing Brexit saga early in January. With reduced trade frictions, global growth should tick higher. Oil supply and demand, however, are extraordinarily difficult to predict.

The Financial Times article “Investors starve US shale drillers of capital” (subscription required) shows the difficulty shale companies face.

The money pipeline is running dry for large portions of the US shale oil sector, tipping drillers into bankruptcy and threatening the industry”s breathtaking growth in oil production.

Spooked by lower oil prices, equity and bond investors are now shunning the smaller, independent shale explorers that lifted the US to the top rank of global oil producers. Meanwhile, say analysts, banks have pulled in their horns, and are likely to further restrict companies’ capacity to borrow when they begin their twice-annual reviews of loans secured by oil and gas reserves.

Last Friday, Baker Hughes indicated that there were 17 fewer oil rigs operating in the US, supporting the thesis that money is now tight. The capital starvation and reduced number of rigs might damp the expected supply of oil for next year.

Interestingly, Saudi Arabia is going forward with its IPO. That has led to speculation that there might be deeper production cuts announced at OPEC+’s meeting in December.

As mentioned, if trade friction is substantially reduced, demand might be higher than expected.

There are a lot of uncertainties. Those who are bearish will find ample arguments to support their thesis. And similarly for the bulls, they, too, will find ample arguments.

All that said, my price forecast remains at $52.50 to $62.50 for October.

I expect West Texas Intermediate oil prices to range between $52.50 and $62.50, consistent with the range in my last two months’ forecast.

There was a lot of volatility in oil prices in September. There was an attack on Saudi Arabia’s infrastructure, and although Saudi Arabia’s exports have recovered to near prior levels, there are still questions remaining as to how quickly Saudi Arabia’s infrastructure can be fully repaired. Adding to the uncertainty is the impeachment investigation in the US. My own view is that one should largely tune out the political noise until such time as there are consequences that affect supply and demand.

On October 27, the Wall Street Journal published an article “Banks Stay Gloomy on Oil, Shrugging Off Attacks” (subscription required). While I am not gloomy, I am certainly not a raving optimist either. Instead, I expect more range-bound to slightly higher oil prices.

Oil prices have shed the roughly 15% gains they notched on Sept. 16, in the aftermath of the attacks on Saudi Arabia’s energy infrastructure. Among the factors pressuring prices are an increase in U.S. inventories, a backdrop of deepening political and economic uncertainty, and reassurances from Saudi officials that crude exports won’t be interrupted.

“The level of Saudi Arabia’s domestic inventories and production spare capacity both suggest that maintaining export levels is achievable,” said Damien Courvalin, head of energy research at Goldman Sachs.

The incident is likely to have “a negligible impact” on commercial inventories held by Organization for Economic Cooperation and Development nations, Mr. Courvalin said.

Every month seems to bring a new source of volatility. Now, there is the fallout from the attack on Saudi Arabia and the impeachment investigation in the US. In mid-October, the China-US negotiations are scheduled to resume in earnest. So, October promises to be an interesting month.

All that said, my price forecast remains at $52.50 to $62.50 for October.