RBC energy strategist on the state of the oil market.
- says the oil market is currently caught between “the strongest fundamental oil market set up in decades, maybe ever,” and a deteriorating macroeconomic backdrop threatening the outlook for demand.
- called for the price of North American benchmark West Texas Intermediate (WTI) (CL=F) crude to average US$114 per barrel next year
- “Recession or not, we believe that the oil complex remains in a structural, multi-year tightening cycle that will go as far as demand will take it,”
- “Absent a recession, the tightening cycle clearly points higher, potentially significantly higher. US$150/bbl, US$175/bbl, US$200/bbl? Pick a number.”
- says the supply-side of the oil price equation has been largely de-risked by recent events.
- “The supply-side shock absorbers have been removed from the market,” he wrote, referring to factors such as low global inventories, and a lack of spare capacity from OPEC and North American producers. “This is important given that supply-side catalysts have torpedoed the majority of the oil market rallies of the past decade.”
- However ... a “deteriorating macro backdrop and the looming threat of a recession” have left the demand outlook potentially the most clouded since the Great Financial Crisis.
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