{"id":8625,"date":"2023-11-11T12:45:04","date_gmt":"2023-11-11T12:45:04","guid":{"rendered":"https:\/\/roydadnaft.ir\/English\/?p=8625"},"modified":"2023-11-11T12:45:04","modified_gmt":"2023-11-11T12:45:04","slug":"dont-be-lulled-by-oils-recent-drop-higher-prices-are-coming","status":"publish","type":"post","link":"https:\/\/roydadnaft.ir\/English\/8625\/","title":{"rendered":"Don\u2019t Be Lulled By Oil\u2019s Recent Drop. Higher Prices Are Coming"},"content":{"rendered":"

RoydadNaft – <\/a><\/span>\u00a0Wars almost always bring upheavals in securities, currencies, and commodities. The lack of impact from the Israel-Hamas war has been remarkable, even puzzling, especially for oil, which might be expected to have been affected most directly by the risk of a wider conflict in the Middle East.<\/p>\n

Crude oil was heading for its\u00a0third weekly decline<\/span>\u00a0late this past week, with West Texas Intermediate December futures trading in the $77-a-barrel range. That\u2019s down about 7% from $82.79 for the front contract settlement on Oct. 6, the day before Hamas\u2019 attack on Israel. Crude futures initially advanced on that news, peaking at $89.37 on Oct. 19, but have been in a downtrend since then, trading around a four-month low as concerns about supply disruptions fade.<\/p>\n

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Those concerns have been superseded by worries about the global economy, according to Carl Weinberg, founder of High Frequency Economics and its chief international economist. Weinberg wrote in a client note on Thursday, \u201cNo new events have fueled fear that the war between Israel and Hamas will spill over to interrupt oil supplies. The Russian invasion of Ukraine seems to have already hit its peak impact on global supplies. And, of course, fear that OPEC+ production cutbacks will lead to a worldwide oil shortfall have proved to be baseless.\u201d<\/p>\n

Saudi Arabia\u2019s energy minister\u00a0blamed speculators for the slide in prices.\u00a0Oil demand is robust<\/span>, said Prince Abdulaziz bin Salman,\u00a0according to Bloomberg. \u201cPeople are pretending it\u2019s weak. It\u2019s all a ploy.\u201d<\/p>\n

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No Surge in OilThe Israel-Hamas War hasn’t affected oil prices.WTI Crude OilSource: FactSet<\/div>\n<\/div>\n
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Price on Oct. 9, the\u00a0\u200bfirst trading day after\u00a0\u200bthe Hamas attack.June 2023Nov.65707580859095$100per barrel<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

Speculators might well be behind the swings in oil, although not as the prince contended, says Walter J. Zimmermann Jr., chief technical strategist for ICAP. Fears of supply interruptions typically spur the oil trade to buy \u201cjust in case\u201d while small speculators hop onto the long side. When no supply disruption takes place, the market gets hit with liquidations of these positions, which, without the war, wouldn\u2019t have been bought in the first place.<\/p>\n

Other market indications point to supply shortage concerns that are now abating. In particular, backwardation is easing, as the price premium for the front, or most proximate, contract has fallen by more than those for more distant contracts. When there are fears of shortages, prices of contracts for sooner delivery get bid up. The March 2024 contract was trading on Thursday for less than a dollar under the front contract, compared with a spread of more than $5 a barrel on Oct. 6.<\/p>\n

These technical factors might explain some of oil\u2019s slide over the past month or so. But the decline appears fundamentally driven. There is no shortage of supply, while worries persist about the global economy.<\/p>\n

Yet recession concerns don\u2019t jibe with the stock market\u2019s 5% advance, marked by eight straight sessions of gains that ended on Thursday; by Friday, the rally resumed. Stocks\u2019 gains came on the heels of a sharp bond rally, which took the benchmark 10-year Treasury yield down from a peak of just over 5% to about 4.5% on signs the Federal Reserve might be done raising its short-term interest-rate target.<\/p>\n

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The drop in bond yields was also abetted by the slide in oil. Lower fuel costs ease upward pressures on consumer prices, Weinberg notes.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

AAA\u2019s tracking of\u00a0gasoline prices<\/span>\u00a0shows a drop of 29 cents a gallon in the past month, to $3.39 on Friday.<\/p>\n

That could be as good as it gets for motorists, however. For investors in oil stocks and the commodity itself, the outlook is for higher prices next year after a mostly frustrating 2023 in the energy sector.<\/p>\n

Based on supply-demand fundamentals, Brent crude\u2014the international benchmark\u2014should average $118 a barrel in 2024, up from $80 currently, according to a BCA Research report from Robert P. Ryan, chief commodity and energy strategist, and Ashwin Shyam, associate editor for commodity and energy strategy.<\/p>\n

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UBS\u2019 Global Wealth Management also sees Brent moving higher, to the $90 to $100 a barrel range. Stronger global demand plus discipline by oil producers should underpin the market, the firm says in a client note.<\/p>\n<\/div>\n<\/div>\n<\/div>\n

Many see global demand for oil rising in 2024. OPEC expects an increase of two million barrels a day in 2024, while the International Energy Agency forecasts an 800,000 daily move.<\/p>\n

Moreover, RBC Capital Markets\u2019 global commodity research group sees a chance for Saudi Arabia to extend its voluntary output cut of a million barrels a day into the first quarter of next year amid fading Middle East geopolitical risk and market concerns about Chinese demand. The bank writes in a research note that there is a strong diplomatic push to secure the release of hostages held by Hamas in return for cessation of Israeli airstrikes. \u201cA clear concern is that a failure to secure such a settlement could lead to a much wider conflict,\u201d RBC concludes.<\/p>\n

BCA anticipates a higher price being paid to refill the U.S. Strategic Petroleum Reserve\u2014to $79 a barrel, up from $70\u2014putting a floor under prices. Should the war expand to include Iran and its proxies and drive crude prices above $120, Saudi Arabia and the U.A.E. could release up to 2.5 million barrels a day, BCA adds, keeping oil roughly in that range.<\/p>\n

BCA advises investors to take positions in the\u00a0SPDR S&P Oil & Gas Production\u00a0<\/span><\/p>\n

exchange-traded fund (ticker: XOP). UBS recommends that risk-taking investors add long positions in longer-dated Brent futures, now trading at a discount to current, or spot, prices. Those are implicitly bets against a global recession<\/p>\n<\/div>\n

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