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Oil Prices Set for Third Weekly Loss in a Row

Oil Prices Set for Third Weekly Loss in a Row

OPEC+'s potential supply increases have…

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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Is The Oil Price Slide Finally Over?

  • While oil prices collapsed in the first quarter of 2023, analysts and banks still expect higher prices at the end of the year.
  • This weekend, Goldman Sachs reiterated its call for Brent Crude to hit $95 in December 2023 and climb to $100 per barrel next year. 
  • While bearish sentiment and fear of a major recession have spooked speculators, analysts believe fundamentals point to higher prices.
North Sea oil

Despite oil’s most recent slump to a 15-month low last week, analysts and investment banks continue to expect higher prices at the end of this year as demand is set to pick up with the driving season, and supply is bound to tighten with the OPEC+ cuts in the second half of 2023. 

Concerns about demand in a possible recession and renewed fears of further bank collapses sent oil prices to their lowest level since December 2021 in the middle of last week. In the week to May 5, oil ended its third consecutive week of weekly declines—the longest weekly losing streak since November last year.   

Oil’s Latest Crash

Data from exchanges showed that traders and speculators fled the oil market in the week to May 2 due to concerns about the economy and the banking sector. Open interest in the U.S. benchmark, WTI Crude, is now at a three-year low. Lower open interest and liquidity in the market is bound to make price swings even more extreme, according to analysts. 

Driven by heavy selling in energy, bullish bets on the major commodities futures plunged by one-third in the latest reporting week to the lowest since June 2020, Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted.

“During an eight week period the crude oil market has seen a banking crisis, an Opec cut driving a spike and subsequent focus on gap closing, and fresh demand concerns,” Hansen commented.  

The Fed rate hike last week and intensified concerns about a looming recession shifted the focus of the market participants – again – to the macroeconomic picture and away from fundamentals. 

But according to analysts, fundamentals point to a tighter oil market in the second half of the year, which, barring a major recession, would drive oil prices higher from the current levels in the low to mid-$70s per barrel.   Related: China Is Coming Out Of The Shadows To Defend Its Oil Interests

Banks Expect Higher Prices Through Year-End

Despite last week’s price plunge, Goldman Sachs this weekend reiterated its call for Brent Crude reaching $95 in December 2023 and hitting the $100 per barrel mark next year. 

“Our forecast remains that Brent rises to $95 per barrel by December and $100 per barrel by April 2024 as we expect large deficits in H2,” analysts at Goldman Sachs wrote in a note carried by CNBC.

Concerns about near-term demand and a large oversupply look “overblown,” according to the investment bank, especially in light of the new OPEC+ production cuts beginning this month. 

The OPEC+ group surprised the oil market in early April by announcing additional cuts to production between May and December 2023 to ensure the “stability of the market.”  

OPEC+ ministers are meeting again on June 4, and reports have it that the meeting will be held in person. The last time OPEC+ ministers met in person in Vienna was in October 2022, when the alliance announced the initial oil production cuts from November 2022 through December 2023. 

Analysts are not ruling out another OPEC+ action to support prices, although the alliance has always denied it is aiming at a particular price level. 

Yet, the latest estimate from the International Monetary Fund (IMF) pegs the breakeven oil price for OPEC’s de facto leader and the world’s top crude oil exporter, Saudi Arabia, at $80.90 per barrel. That’s the price of oil the Kingdom will need to balance its budget this year, suggesting that the Saudis – and its Gulf allies – may not be too happy with prices staying in the low to mid-$70s for too long. 

As oil was heading to a third week of weekly losses, ING strategists Warren Patterson and Ewa Manthey said on Friday that “Sentiment clearly remains negative, which suggests that there could be some further downside in the near term, although, we would expect the market to find good support near the March lows of around US$70/bbl.”

The bank continues to expect a deficit in the market in the second half of the year. 

“While sentiment is negative at the moment, the market is in oversold territory and our balance sheet still shows that the market will be in deficit over 2H23, which should drive prices higher,” ING’s strategists said. 

In the absence of material deterioration in the macroeconomic picture and as long as Wall Street believes that the Fed will cut rates later this year, oil prices could stabilize, according to Ed Moya, senior market analyst at OANDA.


“The oil market was extremely oversold and it will probably continue to stabilize as long as Wall Street is still confident the Fed will cut rates later this year,” Moya said on Monday. 

“Oil prices won’t be able to rise that much from here given all the growth demand fears, but expectations are high for OPEC+ to try to keep prices above the $70 a barrel level.” 

WTI Crude is expected to tick up from current levels in the low $70s and “form a range above the mid-$70s to the mid-$80s if the macro backdrop doesn’t completely deteriorate,” Moya added. 

“There are a lot of risks on the table, but optimism is growing for debt ceiling drama and banking jitters to remain as short-term problems,” the analyst noted.

By Tsvetana Paraskova for Oilprice.com

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EXXON Mobil -0.35
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