I reduce my West Texas Intermediate oil price range by $10 to be between $80 and $100 per barrel for October.
A few days after my last forecast, the price dropped through the floor. Russia’s war against Ukraine has escalated, The Fed’s apparent determination to raise rates whether or not they cause a recession and Prime Minister Truss’ chaotic mini-budget rattled markets.
As I write, the VIX is close to 32, an abnormally high value. The VIX is often referred to as a fear gauge because the higher it is, the more volatile the markets.
The reasons for my forecast are as follows: Oil prices are expected to rise from recent lows of $70 as we near the end of the SPR releases in late October.
I expect OPEC+ to announce a production cut of five hundred thousand to one million barrels per day at its next meeting in early October.
Prices are expected to increase as the shoulder season of September and October passes and winter approaches. Russian production could start to decline. And China may start opening up after its congress every five years in mid-October.
Given the extreme volatility in the markets, there are certainly risks. The US dollar could continue to rise until something breaks. The UK’s mini-budget problems could spin out of control and affect financial markets around the world.
Investors can become so risk averse that nothing goes up, including oil. OPEC+, due to all the economic uncertainty, might decide not to cut. China may further tighten its efforts to control COVID-19. And the world’s major economies could slide into a deeper recession than many expected.
As far as OPEC+ is concerned, I think they will cut production because they prefer stable oil prices instead of soaring prices and want to encourage more energy development, both from the oil and gas as well as renewable energies.
As the VIX indicates, market volatility is very high due to a lot of uncertainty. It is impossible to be sure of a particular result. The scenario in which I have described rising prices due to OPEC+ cuts, the passage of the shoulder season, potential Russian production cuts and increased Chinese demand, however, is the one in which I have the most confidence. In general, I am optimistic about rising oil prices by the end of the year.
Editor’s note: The summary bullet points for this article were chosen by the editors of Seeking Alpha