Energy Prospectus

From Reuters
"According to an International Monetary Fund official, Saudi Arabia would need Brent oil priced at $80-$85 a barrel to balance its budget this year. Oil prices are trading at over $60 per barrel, pressured by global trade disputes. Putin said a price of $60-$65 a barrel suited Moscow and that the decision by OPEC and its oil exporting allies should also take into account the decline in production in Iran and Venezuela, and problems in Libya and Nigeria." Russia will be meeting with OPEC on June 25 to extend their production quota agreement.

In the last hour the price of the July NYMEX contract for WTI has spiked up to approximately $53/bbl. Up about 2.5% on the day.

No reason for the spike other than lack of sellers.

Big moves are caused by computers trading on all the same formulas. Today, maybe it was just a lot of short covering when WTI started to climb up from $51.50 early this afternoon.

Putin's comment above is probably just Russia positioning to get a higher quota when they meet with Saudi Arabia on June 25. The chances of the OPEC+ production limits being extended are now ~99%. Saudi Arabia cannot survive in a $50/bbl world and none of the other cartel members can either.

Wells Fargo Securities fresh WTI oil price forecast is below. MY TAKE is that they think the recent selloff is overdone and that the annual summer spike in demand for transportation fuels will push WTI back up to $60 in Q3 and higher in Q4.

2019
Q1A = $54.74
Q2E = $61.00 < Note that this price is fairly well locked in since we are deep into Q2
Q3E = $60.00
Q4E = $61.00

2020E = $60.50

Oil Macro: New Datapoints And Things To Worry About, But Same Price Deck

 Key Takeaway. Despite the recent weakness and volatility in crude oil
prices, we remain comfortable with our oil price deck. Locking down
the various moving parts on forecasting both global supply and
demand remains challenging as always, but we believe the net effects
deliver results pretty close to our prior expectations. Over the past
month or two, we had noted more optimism from peers and clients
about the potential for higher oil prices in H2 2019 on tighter
fundamentals, but we resisted the urge to chase that trend given
uncertainties for supply and demand. We do expect IMO 2020 to have
an uplifting impact on light/sweet oil prices, but not drive a major shift
in the curve. Yes, Libya remains on the brink of civil war (as it has
since 2012) and Venezuela encounters multiple challenges, but core
OPEC has significantly curtailed production, which indicates a
substantial buffer is available on short notice. Thus versus our most
recent global macro updates, we acknowledge that global supply is
likely to fall short of our expectations given sanctions on both
Venezuela and Iran, pipeline contamination issues in Russia, possible
Libya shortfalls and quota discipline in the rest of OPEC. Conversely, on
the demand side of the ledger, U.S. demand growth appears to have
decelerated slightly – though clearly remains positive – European
demand has slowed, and China’s apparent diesel demand has fallen at
a pace quite similar to and to the absolute levels last seen during the
2008/2009 global financial crisis. If one wants to worry, that is where
to focus most closely in our view.

 China Diesel Demand by the Numbers. China’s diesel demand
growth in March and April 2019 fell to levels last seen a decade ago,
just above 2.5mmbpd. March and April diesel demand declined 14%
and 19%, respectively, year/year. After delivering rapid growth in the
prior decade, China’s diesel demand growth rate slowed after 2011 and
has declined slightly since 2015. On a monthly basis year/year diesel
demand has been in decline every month since December 2017. Thus it
is not the trend but the acceleration in the diesel demand decline that
has our attention. We believe the accelerating decline is most likely
tied to economic factors and the effects of the tariff “war” with the U.S.
(lifted demand earlier in 2019 to “beat” the tariffs, but now falling). To
highlight the difference between the industrial and consumer side of
China’s demand trends, gasoline remains positive for the year with just
the April data showing a 1% decline year/year. Possibly for the first
time ever, China’s gasoline demand exceeds its diesel demand. Finally
and perhaps most interestingly, China’s apparent oil demand has
actually continued to trend positive throughout 2019. There are
definitely cross currents afoot and plenty to keep our eyes on as we
move to mid-2019 and beyond, but thus far supply and demand
weaknesses seem to be matching up fairly closely.