Oil Update for June 2023

In July, I will maintain my June forecast that West Texas Intermediate (WTI), oil prices would range between $65 to $85 per barrel. WTI oil is currently around $70.50 per barrel as I write this post on June 30.

Once again, I had expected stronger prices. Some of the pundits I follow predicted that oil prices would increase once the debt crisis was over. Some pundits even said that OPEC+ didn’t need to reduce further during their early-June meeting. Oil prices stagnated even after the debt ceiling debate was resolved and the Saudis had announced a reduction of one million barrels per a day in July. Imagine the prices if Saudi Arabia had not made a cut.

Based on monthly data, the EIA has revised its US demand upward for April. Below is an exchange between Javier Blas of Bloomberg and zerohedge.

Javier Blas, in an article dated May 16, 2023 entitled “The Oil Market’s Real Weakness is Supply, Not Demand”, stated that:

Is the increased supply coming from Russia, Venezuela, and Iran an indication that Western sanctions don’t work? No. This is a sign that the sanctions are aimed at keeping the oil markets well-supplied, even if it means that Moscow and Caracas will be able to sell oil. Western politicians are wrong when they say that sanctions will cripple rogue oil-dictators. They want to cripple the inflation. The strategy is working for now. It is yet to be seen whether the strategy will last through summer when oil demand is expected to increase.

Oil prices are affected by the strong supply coming from Russia and Iran as well as China’s slow recovery and higher interest rates. Oil prices should remain stable as long as the US does not tap its strategic petroleum reserve, and Saudi Arabia is determined to increase the physical market.

According to a June 29, Bloomberg article entitled “Brent Oil Set For Record Run Of Quarterly Losses Due To High Supply”, (subscriptions may be required), the following is stated:

The outlook is mixed for the second half. Analysts have predicted that the market would tighten due to seasonal maintenance ending. Jerome Powell, the US Federal Reserve chair and other Fed officials have stated that more interest rate increases are possible. This would reduce energy consumption.

In a note, Royal Bank of Canada analysts Michael Tran & Helima Croft expressed their concern that the lack of tightening of the global physical markets will further compound market apathy. This could be a bad year for the oil markets as the risk is kept on the sidelines.

Amrita Sen, from Energy Aspects, worries in the video that sovereigns (perhaps PEMEX Mexico) may hedge their output. Oil prices are pushed down when sovereigns hedge their output.

In regards to the recent events in Russia, I ignore them as I don’t believe that they will have an impact on oil prices.

I am of the opinion that prices will either stabilize or rise from here. So far, my bullishness this year has not been correct. I am looking forward to how July will unfold.

I hope that everyone has a wonderful start to their vacation.

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Editor’s Note: Seeking Alpha editors selected the summary bullets in this article.