Dr. Ken Rietz
There are always numerous factors pulling and pushing on the price of crude oil, but now it seems that there are many more than usual, and with different time frames. Note, however, that the markets often take into account all possible available information, regardless of time frame. Rather than looking at just one or two of these factors, I will lay out a large sample of them before giving my opinion on the medium-term direction of crude oil futures prices. But first, here is the price of WTI crude futures as shown in the Fundamental Analytics platform.
The pressures on crude oil are both on the supply and demand side. We will discuss both, starting with supply. The supply side of crude oil is suffering from at least the following issues:
- The sanctions on Russian oil. This is a minor factor, since Russia has been able to find markets for its oil that don’t support the sanctions.
- The Red Sea disturbances. This could be a major factor, delaying and increasing the cost of oil shipped around Africa.
- Extreme cold weather in Texas and North Dakota affected oil production for several more weeks. This is a minor factor.
- OPEC+ and Middle East tensions. This can be a major factor, but is very difficult to predict.
- Libyan oil worker protests. This is a minor factor.
- Disputes over Guyana’s newly-found oil field. Exxon and CNOOC are battling Hess over development rights. This is a minor factor now, but given the size of the field, it could become a major factor.
Well-informed readers could add several more, but that is enough for now. It ic clear that there are an abnormally large number of reasons that crude oil supply could drop rapidly. Of course, the supply could remain fairly constant also, but the markets appear a bit nervous. If the reduction in supply takes control, the prices of crude oil will go up.
The pressures on demand are, if anything, even more imposing. Here are a few of them:
- The US economy is growing. This might be a big factor, though given that the US is now a net exporter of oil, the effect on global demand could be muted.
- The global movement to “green energy” has not had a big effect yet.
- The increasing hesitancy in the US about using EVs. This is still a minor factor.
- Global economy may be slowing. This is an increasingly major factor.
- China’s economy is slowing. A consultancy estimates that the million barrels of oil per day increase in their oil usage will dwindle significantly. This might turn out to be a major factor, even if our internal estimates point to a turnaround in China.
- Both China and the US are refilling reserves. This is a minor factor because it is happening slowly.
Again, readers could easily add more, but these are the most significant ones. And if the demand is reduced, the prices of crude oil will decrease.
So, where are crude oil prices heading? Looking at the different factors, China is the biggest. If China experiences a revitalization in its economic activity, prices in the medium term could rise a little bit, especially considering the geopolitical reality that is shaping up currently.