[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 oil ended the week at $71.89 after closing the previous week at $69.02. The price of WTI ended the week at $69.62 after closing the previous week at $66.63. The price movement aligned with our expectations that oil prices would move upward with support from the strengthening economy and rebounding demand.
The same themes that have been driving oil prices continue to provide support for oil prices. The U.S. economy continues to rebound with the latest US jobs report showing that 559,000 jobs were added in May. However, the rate of job increases is still below expectations, which continues to provide support for the Federal Reserve to maintain its accommodating monetary policies. Additionally, the yield of the 10-year treasury ended the week at only 1.554%—well below the recent high of 1.722% that occurred at the end of March. The U.S. Dollar Index also strengthened slightly—and remains about the critical support level preventing a significant drop in the U.S. dollar.
Meanwhile, while oil demand increases and oil prices go higher, the supply response remains muted. OPEC+ decided to maintain the previously agreed production increases of 350,000 bbl/d in June and 441,000 bbl/d in July. Additionally, Saudi Arabia will reduce its one-million b/d of unilateral cuts by 350,000 bbl/d in June and 400,000 bbl/d in July. In the U.S., oil production has stayed essentially flat since the middle of last year, and the rate of the increase in oil rigs has recently slowed. As such, with the oil demand poised to continue to increase during the summer months, crude inventories are expected to continue to decline.
The risks also remain the same—with the main risk still being a potential rebound in COVID-19 because of variants and the slow rollout of vaccinations in Asia and other countries outside of the U.S. and Europe. With respect to the supply side, the risk has been associated with the breakdown in the OPEC+ framework. At this time, this risk is diminished by the U.S. shale sector shifting to a focus on delivering financial returns and dividends—and the outlook for a quick return of Iranian barrels fading for now.
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.
These fleets will deploy in early 2022 and carry an optional two-year extension following the initial term.
Liberty Oilfield Services Inc. has introduced FracSense, a diagnostic service to help E&P customers acquire more accurate diagnostic well data to optimize hydraulic fracture completions and well spacing, on May 11.
The strategic partnership is introducing FracSense, a diagnostic service to help engineering professionals at our oil and gas customers acquire more accurate diagnostic information, ultimately leading to optimized hydrocarbon production.