Crude Oil: OPEC Is Key

Our Commodity & Energy Strategy service remains upbeat on the cyclical outlook for crude oil prices.

BCA | Commodity Energy Strategy

T he spot price of Brent crude oil fell below $100 last week amid rising investor risk aversion and dollar strength. However, the cyclical backdrop remains supportive for oil prices and a sustained global recession would be necessary to keep crude prices below $100 for long.

Note:

  • The physical oil market is tighter than suggested by surging crude stocks.
  • Oil product inventories are drying up, even as refinery production is on track with last year’s trend.

This points to a recovery in underlying U.S. energy demand beyond the seasonal increase. Meanwhile, OPEC spare capacity is approaching critical levels and will not be able to accommodate the upcoming seasonal upswing in global oil demand at these prices.

Our Commodity & Energy Strategy service expects OPEC to reaffirm its support for a $100 floor for the OPEC basket price at its June 14 Vienna meeting. Barring this, Brent prices could briefly plunge toward their previous $75-85 support channel. However, this price level would not be sustainable, as emerging market demand will outpace OPEC’s ability to supply the global economy with oil.

Bottom line: In the absence of a policy catalyst, oil prices remain vulnerable. But as long as the global economy does not slide back into recession, medium-term prospects for oil prices are good.

Print Friendly
Macroeconomic Research
BCA Research About BCA Research

BCA Research is the world’s leading provider of independent investment research. Since 1949, the firm has supported its clients in making better investment decisions through the delivery of leading-edge economic analysis and comprehensive investment strategy research. With access to over 150,000 raw time-series, BCA strategists are aided by one of the most extensive research databases in existence, cover every region of the globe, and provide analysis on virtually every investable asset class. BCA maintains a head office in Montreal, with local offices in New York, Los Angeles, London, Hong Kong, Sydney, and Buenos Aires. Not yet a client of BCA? Take a short trial to our research.

Speak Your Mind

*