[Editor’s note: This report is an excerpt from the Stratas Advisors weekly Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.]
The price of Brent crude ended the week at $73.22 after reaching $74.39 on June 16 and closing the previous week of $72.69. The price of WTI ended the week at $71.50 after reaching $72.15 on June 16 and closing the previous week at $70.91.
Prices pulled back from levels reached on June 16, in part, because the Federal Reserve indicated that there might be a rate increase in 2023, instead of 2024, which was the prior messaging of the Federal Reserve. Consequently, the U.S. dollar strengthened significantly, as indicated by the U.S. Dollar Index increasing to 92.32 after starting the week at 90.56. Beginning in May, we started highlighting that the U.S. dollar would move upwards from its low because of the relative strength of the U.S. economy. As such, the recent strengthening of the U.S. dollar aligns with our expectations.
For the third quarter of this year, we are forecasting that oil demand will increase by 1.77 million bbl/d in comparison with the second quarter of this year. Oil demand in China is forecasted to increase by 240,000 bbl/d and oil demand in the U.S. is forecasted to increase by 460,000 bbl/d (with support from increased gasoline demand associated with the driving season). Oil demand in the third quarter is forecasted to be 5.45 million bbl/d more than in third-quarter 2020, but still 2.48 million bbl/d less than in third-quarter 2019.
Additionally, we are forecasting that U.S. oil production will increase from an average of 10.97 million bbl/d in the second quarter to 11.26 million bbl/d in the third quarter of this year. Outside the U.S., we are forecasting that OPEC supply will increase, on average, by 1.32 million bbl/d with supply from Saudi Arabia increasing by around 1 million. While we are forecasting that supply from Iran will edge up—as we have been forecasting—we do not think a deal will soon be struck between the U.S. and Iran that will allow for a major increase in oil exports from Iran. While the incremental supply for the third quarter will be more than the incremental demand, overall oil demand is forecasted to outpace overall supply by an average of 1.29 million bbl/d during the third quarter.
We are expecting that oil price will move up moderately during the third quarter and that the price of Brent will average around $75. One reason for the moderation in the increase in oil prices will be the strengthening of the U.S. dollar. Another reason is that the upward range of oil will be limited by the ability of OPEC to bring back supply quickly to address unexpected upward movements in demand and prices.
About the Author:
John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.
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