Oil price forecasters are gazing into their crystal balls after the latest bout of market uncertainty and revising predictions for the fiscal second quarter amid a string of mixed economic developments on three continents: the US, Europe and Asia. And, depending on who you listen to, they’re going up. Or down..On Tuesday, they were mostly up. North American Benchmark West Texas Intermediate closed above $80 after falling below $65 last week. Western Canadian Select jumped almost 9% to $59.17..That in turn prompted a new round of price forecasts after the close of the fiscal first quarter — which is also the start of the government budget year — March 31..Goldman Sachs was the latest to weigh in, raising its forecast price for UK Brent oil to $95 a barrel mere hours after the OPEC cartel shocked markets with a surprise production cut of 1.5 million barrels per day (bpd), sending traders into a tizzy. Likewise, it raised its 2024 projection to $100..Not to be outdone, Holland-based ING one-upped them, raising its forecast number to $101, which was followed by a string of smaller firms and trading houses all too eager to jump on the price bandwagon — they were presumably the first to jump off after the collapse of Silicon Valley Bank in the US and Credit Suisse in the EU. .Not to be cowed, Citibank and Morgan Stanley were the naysayers by actually lowering their own forecasts to about $85. Although that still might seem a fairly bullish number, it’s still about 15% lower than all the others. Citi reasoned the Saudis must have doubts about the health of the global economy to make such a drastic move..They all citied the usual suspects as justification for their numbers: the war in Ukraine; uncertain Chinese demand; and the health of global financial institutions in the US and EU. The latter sent oil crashing to multi-year lows before OPEC stepped in. Prices are up more than 10% in just under two days..And we’re not talking about any ordinary banks. While SBV was a small player even by US standards, Credit Suisse specialized in trading commodities futures contracts, especially oil. Remember: oil is mostly a paper traded market, there are only a handful of companies that actually refine — and hence — pay for the stuff. Everybody else is an arbiter. It’s speculative by nature..It all comes down to supply and demand. Why would OPEC be cutting production — some 3.5 million bpd since October — even though it revised demand forecasts up by some 2.5 million bpd in the second half of the year? .And that number could be small, after PetroChina — one of the few Chinese state entities that trades in Hong Kong and New York — on Tuesday said it expects Chinese fuel demand to jump 3% above pre-pandemic levels. If so, $110 probably isn’t out of the question..That’s why oil is risky business. As Albertans, we all have a stake in it considering the province is home to the third-largest reserves on the planet. Every dollar up or down is about $200 million and change to the treasury. .But it also serves to illustrate why we’re price takers, not price makers, in a global ponzi scheme that affects almost every aspect of our daily lives — from hospitals to schools to roads — especially when 98% of our exports go to a single customer. All those little things that happen a world away have a direct impact here at home. .That’s called being a slave to the market. In someways it seems irrational. And it is. In the words of a wise trader, ‘markets can stay irrational longer than you can stay solvent.’
Oil price forecasters are gazing into their crystal balls after the latest bout of market uncertainty and revising predictions for the fiscal second quarter amid a string of mixed economic developments on three continents: the US, Europe and Asia. And, depending on who you listen to, they’re going up. Or down..On Tuesday, they were mostly up. North American Benchmark West Texas Intermediate closed above $80 after falling below $65 last week. Western Canadian Select jumped almost 9% to $59.17..That in turn prompted a new round of price forecasts after the close of the fiscal first quarter — which is also the start of the government budget year — March 31..Goldman Sachs was the latest to weigh in, raising its forecast price for UK Brent oil to $95 a barrel mere hours after the OPEC cartel shocked markets with a surprise production cut of 1.5 million barrels per day (bpd), sending traders into a tizzy. Likewise, it raised its 2024 projection to $100..Not to be outdone, Holland-based ING one-upped them, raising its forecast number to $101, which was followed by a string of smaller firms and trading houses all too eager to jump on the price bandwagon — they were presumably the first to jump off after the collapse of Silicon Valley Bank in the US and Credit Suisse in the EU. .Not to be cowed, Citibank and Morgan Stanley were the naysayers by actually lowering their own forecasts to about $85. Although that still might seem a fairly bullish number, it’s still about 15% lower than all the others. Citi reasoned the Saudis must have doubts about the health of the global economy to make such a drastic move..They all citied the usual suspects as justification for their numbers: the war in Ukraine; uncertain Chinese demand; and the health of global financial institutions in the US and EU. The latter sent oil crashing to multi-year lows before OPEC stepped in. Prices are up more than 10% in just under two days..And we’re not talking about any ordinary banks. While SBV was a small player even by US standards, Credit Suisse specialized in trading commodities futures contracts, especially oil. Remember: oil is mostly a paper traded market, there are only a handful of companies that actually refine — and hence — pay for the stuff. Everybody else is an arbiter. It’s speculative by nature..It all comes down to supply and demand. Why would OPEC be cutting production — some 3.5 million bpd since October — even though it revised demand forecasts up by some 2.5 million bpd in the second half of the year? .And that number could be small, after PetroChina — one of the few Chinese state entities that trades in Hong Kong and New York — on Tuesday said it expects Chinese fuel demand to jump 3% above pre-pandemic levels. If so, $110 probably isn’t out of the question..That’s why oil is risky business. As Albertans, we all have a stake in it considering the province is home to the third-largest reserves on the planet. Every dollar up or down is about $200 million and change to the treasury. .But it also serves to illustrate why we’re price takers, not price makers, in a global ponzi scheme that affects almost every aspect of our daily lives — from hospitals to schools to roads — especially when 98% of our exports go to a single customer. All those little things that happen a world away have a direct impact here at home. .That’s called being a slave to the market. In someways it seems irrational. And it is. In the words of a wise trader, ‘markets can stay irrational longer than you can stay solvent.’
