OILX - Oil Update - May 2023
2023-05-31 02:15:00 ET
Summary
- I am decreasing my May forecast by $5 per barrel for West Texas Intermediate oil to range between $65 and $85 per barrel.
- Expected stronger prices in May. The prices weakened because of numerous factors.
- The debt ceiling issue ought likely to be resolved this week, and the economy remains reasonably strong.
For June, I am decreasing my May forecast by $5 per barrel for West Texas Intermediate ((WTI)) oil to range between $65 and $85 per barrel. Late Tuesday, May 30, WTI was about $69.50 per barrel.
I had expected stronger prices in May. The prices weakened because of numerous factors, including strong Russian oil exports, continued uncertainty with the debt ceiling, fears of one or two more rate hikes further weakening the economy, weaker than hoped for gasoline consumption over the Memorial Day weekend, and uncertainty about the outcome of the OPEC+ meeting being held the first weekend in June.
The opening two paragraphs from the May 30 Bloomberg article "Russian Oil Flows Stay High Three Months Into Pledged Output Cut: Seaborne exports dip but remain 270,000 barrels a day higher than February, the baseline for output reduction," states the following:
Russian crude oil flows to international markets are edging lower, but still show no substantive sign of the output cuts that the Kremlin insists the country is making.
Four-week average seaborne shipments, which smooth out some of the volatility in weekly numbers, fell for the first time in six weeks in the period to May 28, slipping to 3.64 million barrels a day. But crude flows to international markets remain elevated and are still more than 1.4 million barrels a day higher than they were at the end of last year and 270,000 barrels a day up on February, the baseline month for the pledged cut.
Even though a tentative agreement has been reached on the debt ceiling, there is still some uncertainty as outlined by the May 30 Reuters article "Oil slides 4% on worries about US debt ceiling, OPEC+ talks."
NEW YORK, May 30 (Reuters) - Oil prices fell more than 4% on Tuesday on concerns about whether the U.S. Congress will pass the U.S. debt ceiling pact and as mixed messages from major producers clouded the supply outlook ahead of the OPEC+ meeting this weekend.
The Personal Consumption Expenditures (PCE), a favorite Fed inflation gauge was hotter than expected for April at 4.4 percent, up from 4.2 percent in March, which might cause the Fed to raise rates again. If the Fed raises rates again, that will likely slow the economy and likely further decrease oil demand.
The above tweet from Patrick De Haan shows that gasoline demand was down over this important holiday weekend and kickoff to the driving season. As mentioned in the Reuters quote, there is uncertainty regarding the upcoming OPEC+ meeting.
The debt ceiling issue ought likely to be resolved this week, and the economy remains reasonably strong. Because historically OPEC+ does not like extreme oil price volatility, it likely will put measures in place to ensure that supply does not overwhelm demand at current prices. For these reasons, I am biased toward oil going higher, especially as the driving season gets underway.
Last month, I provided a YouTube link to Paul Sankey giving his thoughts on oil. Here is another YouTube link where again he provides his views. Unlike me, he is less sanguine on oil prices for the rest of the year. Even though my outlook is different than his, it is good to consider opposing viewpoints.
Whether agreement on the debt ceiling passes both houses before the deadline of June 5 and what OPEC+ decides this coming weekend will strongly influence what happens to the price of oil for June. While I have a bullish bent for June, I certainly have no unique insights.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Oil Update - May 2023