Geopolitics and Economics

This weekly report is an excerpt from our Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.  Contact John Paisie (+1-832-517-7544 or E-mail) for the detailed analysis or for more information about the Short Term Outlook.


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The price of Brent crude ended the week at $85.57 after closing the previous week at $83.63. The price of WTI ended the week at $79.98 after closing the previous week $76.28. The price movement aligned with our expectations that oil prices would stabilize after recent steep price declines. Furthermore, so far, our view that we initially put forward in early October that the price of Brent crude would average around $90 during 4Q of this year is holding up, as well as our view that the price of Brent crude would remain, for the most part, in the channel between $85.00 and $95.00 because of upside resistance coupled with downside support.

We have been expecting that OPEC+ will continue to manage supply to align with demand considering the production capabilities of OPEC+ members – and the recent news coming out of the OPEC+ meeting held on December 4 supports this view with OPEC+ agreeing to keep to its crude oil supply targets and the two-million barrel/day reduction announced in October.

The other big development is that a price cap of $60.00 on Russian oil has been agreed to by the G7 countries, the European Union, and Australia with the price cap to be reassessed every two months. If the price cap is not adhered to, western entities are not allowed to ship or provide insurance services. It is noteworthy that the penalty for shipping crude oil purchased at a price above the price cap will entail a ban on the ship of only 90 days and not the lifetime ban that was originally proposed.  In response, Russia reiterated that it will not sell crude oil to any countries that apply the price cap. Additionally, Russia has been preparing to avoid the price cap and the shipping and insurance ban, including the expansion of its tanker fleet (more analysis is provided in this week’s report in the Geopolitical Section).

We have been putting forth the view for months that additional sanctions (including a price cap) on Russian oil exports will be of limited effectiveness; however, the additional sanctions create uncertainty and the basis for a risk premium, which otherwise would not be part of oil prices. We are still holding to that view after the imposition of the price cap.

While there is uncertainty about supply, there are clear indications that oil demand is waning. Based on the 4-week average, current gasoline demand in the US is running 616,000 b/d less than for the same period of 2019, which represents a difference of 6.68%. Diesel demand in the US decreased slightly to 3.66 million b/d from the previous week of 3.85 million b/d. In comparison, for the same period of the previous year, diesel demand was 4.29 million b/d. Based on the four-week average diesel demand is 506,000 b/d less than for same period of 2019, which represents a difference of 11.53%.

The outlook for demand does not look promising with signs that the global economy is moving quickly towards recession. The latest PMIs for US are less than stellar, including the Manufacturing PMI, which was 47.7 for November, (readings below 50 indicate contraction). The November reading is the first reading below 50 since June 2020. The Services PMI for the US is even worse at 46.10 and the Composite PMI at 46.30.

The PMIs for the Eurozone also are indicating contraction with the Manufacturing PMI coming in at 47.1 for November, the Services PMI coming in at 48.60, and the Composite PMI coming in at 47.80. China’s manufacturing and non-manufacturing PMIs for November also came in below 50, reflecting contraction for the second consecutive month.

For a complete forecast of refined products and prices, please refer to our Short-term Outlook

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