Dr. Ken Rietz
October 18, 2023
The price of WTI crude oil jumped to a new 2023 high when the news of the Hamas-Israeli conflict hit. That is the typical market reaction whenever armed aggression occurs; it was much more prominent at the start of the Russian invasion of Ukraine in February 2022. It is also typical for the price of crude oil to retreat after the spike, again as seen after the Ukraine incursion. However, the market is always guided by a multiplicity of factors, and many of them are now indicating that the price of crude oil could be declining overall. We will look at several of those factors in this commentary. But first, we need to look at the price of WTI crude oil as set by NYMEX.
Figure 1: Front month futures price of WTI Crude Oil NYMEX Exchange, dollars per barrel
Bloomberg points out that before the Middle East struggle boiled over, crude oil was in a downtrend last year from the end of September to early October, falling more than −13%. Combined with disappointing industrial production and construction spending, the global economy, except for labor data, has shown weakness. Plus, we are entering the slowest season for crude oil demand. None of these factors are expected to diminish in the short term.
Beyond these general items, there are two specific events that are still in process that would have a substantial effect on crude oil prices. The first of these is Russian exports exceeding the original stated limit of 3.28 million barrels per day (bpd). The Russian seven-day average export volume of oil is 3.51 million bpd, and the four-week average volume is 3.36 million bpd, both of them as of October 17, 2023, according to Bloomberg’s analysis of tanker tracker data. It should also be stated that the Saudi export restriction has been honored. This issue will likely be raised quietly, but if Russia continues on this path, more crude oil will hit the world’s markets, and the price of all crude oil will decline.
The second specific event is the resumed negotiations between the US and Venezuela. The sanctions against the exporting of Venezuelan oil to the US would be eased on condition that Venezuela hold a competitive, monitored presidential election next year, according to Reuters. This news caused crude oil futures to drop by about $1 per barrel at the beginning of this week.
Both of these events are currently evolving. There is no assurance how they will finally play out. And one analyst quoted by Bloomberg says that the price of crude oil will go to $150 per barrel if the war in the Middle East expands to much more of the region. Even in the best of times, predicting the price of crude oil is not simple. But it is useful to know that there are factors pointing to a decrease in that price.