Crude Oil Prices May Keep Falling Despite Two Wars, OPEC Cuts
Crude Oil Prices May Keep Falling Despite Two Wars, OPEC Cuts
By:Ilya Spivak
Crude oil prices are on track to end 2023 with a loss despite a flood of would-be reasons to go higher. A deeper downturn looks likely in 2024
- Crude oil is set to fall in 2023 despite two wars and OPEC+ output cuts.
- Prices appear focused on cyclical fundamentals of supply and demand.
- Anemic global economic activity bodes ill for crude oil prices in 2024.
To read the breathless headlines, crude oil prices had every reason to skyrocket in 2023.
Russia put its 11.8% share of global supply in jeopardy when it invaded Ukraine in 2022. Now after an attack on Israel by Gaza-based terrorist group Hamas, a war in the Middle East threatens supply from world’s biggest oil-producing region.
At the same time, Saudi Arabia has led the Organization of Petroleum Exporting Countries (OPEC) as well as the cartel’s oil-producing allies – collectively known as “OPEC+”—have pledged to cut production. Taken together with a treacherous geopolitical backdrop, it isn’t hard to imagine supply disruption fears driving price gains.
Two wars and OPEC output cuts: who cares?
The markets reasoned otherwise, and the benchmark WTI crude oil contract is on track to end the year with a loss.
What’s more, the trading range narrowed to the smallest since 2019. This seems to speak to a relatively sanguine disposition from traders. They apparently saw little to inspire sharp price swings.
As it turns out, market participants cared much more about the cyclical fundamentals of supply and demand than they did about would-be disruptors. An index of global commodity prices excluding energy and WTI have been moving in lockstep, implying that crude oil is taking its cues from broad-based trends in global demand for raw materials.
This makes sense. OPEC+ has shown itself to be mostly ineffective. The group has overshot its quota every year since beginning coordinated output cuts nearly a decade ago. Ensuring that members maintain a united front has proven elusive. Meanwhile, skirmishing along key delivery routes has had negligible impact on shipping rates.
Crude oil at risk as the global business cycle turns
The cost of transit on a Suezmax tanker—the largest vessel able to be cross the eponymous canal fully loaded from the Arabian gulf to the Mediterranean—hardly responded as the guns began to fire in Ukraine and Gaza. This speaks to two things: a lack of urgency in Europe, and minimal delivery risk premium.
In fact, shipping prices seem to track global trade volumes, with a lag of about seven months. The upturn in economic growth amid the worldwide reopening after the COVID-19 pandemic echoed in higher transport costs. Cooling demand thanks to a round of steep interest rate hikes by most major central banks is now having the opposite effect.
If it is only the business cycle that truly matters, all this bodes ill for oil prices. Leading purchasing manager index (PMI) data puts the global economy near standstill. Meanwhile, market-watchers polled by Bloomberg are on a many-month campaign to cut growth forecasts. Economic data flow analysis by Citigroup warns they’re still too optimistic.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.