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Oil struggles, but is it a correction or a reset?


The past couple of weeks has seen WTI (West Texas Intermediate) oil dive almost $8 a barrel in a reversal of fortunes for the North American benchmark that was destined to reach $80 this summer according to many analysts and experts. Their hopes seem to have been dashed even though the world crude standard, Brent, has not suffered WTI’s fate, falling by less than half its WTI counterpart. Given the recent bearish Energy Information Administration’s reveal of two consecutive weeks of crude inventory builds, one might rightly be inclined to believe that crude’s collapse is imminent.

Long-term forecasts are usually based on assumptions that present trends will continue. Even though 2018 has been anything but dull on the crude price front, a wider perspective of the usual bearish trends, including the new record level of domestic U.S. oil output at 10.8 million barrels a day, increased domestic rig counts and OPEC, non-OPEC chatter of increasing production quotas at the June 22 meeting in Vienna, shows that the petroleum energy complex is still poised to pack a punch.

Considering that no major report or analysis is suggesting a decline in demand for oil, with the consensus at a 1.5 to 2 million barrel-a-day hike in consumption for 2018, and that production issues among leading global producers may delay or even prevent some from addressing the shortfall for demand, a shortage may soon become apparent. Barring any surprise developments that would see either a turnaround in Venezuelan output or a sudden change in foreign policy by the U.S. vis-a-vis Iran, prices could soon resume their upward path to the $80 mark with further pressure on producers to increase undercapitalized and infrastructure challenges to make up the potential shortfall.

As summer approaches in earnest, other considerations need to be reviewed, including summer demand, meteorological incidents, such as hurricanes or typhoons, unforeseen disruptions in supply due to geopolitics, or unforeseen events and breakdowns in critical infrastructure. Worries over looming trades disputes, which at first glance might seem bearish, could have the unintended effect of raising prices dramatically with some states paying more for oil and petroleum products or other unknown tariffs or levies.

In an uncertain global environment, oil may not be experiencing a correction, but rather a reset which might see the dramatic resumption of higher prices in the weeks ahead. The implications for fuel prices are clear as mud. But summertime is always a little more expensive at the pumps and may not necessarily follow the dictates of oil prices.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.