From boom to gloom to boom to … Predicting the oil market trajectory is like walking a tightrope in a windstorm

Rashid Husain SyedAh, the sweet taste of victory or could it be defeat? Only time will tell, as oil markets finally scaled the elusive mountain, hitting the OPEC target price of $80 a barrel last week.

The energy chatterati are all abuzz. Was it the reining in by the big crude oil honchos, Saudi Arabia and Russia, that spurred this rise? Can they keep this up, or is the sheen about to fade away?

Opinions, like a spilled oil puddle, are spreading fast and wide.

“We’re expecting a sharp tightening of the market,” Toril Bosoni, head of oil markets at the International Energy Agency in Paris, said in an interview with Bloomberg television late last week. “As demand increases seasonally, we do think there’s a risk that prices will continue to increase into the third quarter.”

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Photo by Sean Benesh

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Then we have Jorge Leon, senior vice president of oil market research with Rystad Energy, claiming we’ve reached the tipping point. He compares it to the onset of a hot summer. “It is the tipping point the market was expecting,” he said. “It looks like the start of the hot summer in the crude market.”

And it’s not just him. Standard Chartered Plc, too, predicts a supply-demand deficit that could more than double in coming months and drain oil inventories by a hefty 2.8 million barrels per day (bpd) in August.

“All the micro-fundamental factors are finally turning bullish,” said Trevor Woods, chief investment officer at commodities hedge fund Northern Trace Capital LLC. “I mean, these draws are gonna be huge.”

But not all is rosy. For instance, the IEA trimmed its forecast for global fuel consumption just a few days prior to the price surge. Yes, they acknowledged global oil demand would hit a high this year, but cautioned us about those pesky macroeconomic headwinds. The “deepening manufacturing slump” in China, rising interest rates, and barrels of discounted crude continuing to flood oil from Iran and Russia led them to revise their 2023 growth estimate lower for the first time this year.

Meanwhile, some traders, as per Bloomberg, are crossing their fingers and hoping for the best. They remain concerned about the wobbly economic climate that could usher in a recession.

On the flip side, oil output is seeing an uptick from the U.S. to Brazil and Guyana. Even the exempted OPEC+ members, like Iran and Venezuela, are ramping up oil sales. Amid all this, Wall Street forecasters who were once starry-eyed about US$100 crude have dimmed their optimism.

JPMorgan Chase & Co. contends that OPEC+ will need to slash output further, while Morgan Stanley sees the market back in surplus next year. “Much depends on demand,” said Martijm Stanley’s London-based oil strategist. “But supply seems to be there to meet it.”

Indeed, it’s quite a conundrum. Predicting the crude market trajectory is like walking a tightrope in a windstorm. A lot hinges on global economic recovery. But in this unpredictable world of ours, nothing is certain.

The crystal ball remains, as ever, frustratingly opaque.

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.

For interview requests, click here.

The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.

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