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Energy Aware II

The trajectory of oil prices has changed course since early March and it is downward.

Analysts continue talking about incredibly tight supply and prices going to $185 or higher but WTI price appears to be converging on about $100 per barrel.

This follows two years of price discovery after the April 2020 price collapse in which price fell to -$38 and then increased to $124 (Figure 1). After averaging only $20 from March 15 through May 15, 2020, the annual average recovered to $39. In 2021, the average price rose to $72 and is now $97 per barrel so far in 2022.

Figure 1. WTI futures prices may be approaching a period of relative stability following two years of price discovery after the April 2020 price collapse.Source: CME & Labyrinth Consulting Services, Inc.

Price peaked at $123.70 on March 8 and has since decreased to $102.41 (Figure 2).  Higher frequency cycles since early March have exhibited lower highs and flat-to-slightly rising lows. The triangle or wedge pattern shown in Figure 2 gives no clear direction for prices going forward—only that WTI price discovery has been achieved for the near term at around $100 per barrel.

Figure 2. WTI futures price appears to be converging on about $100 per barrel for the near-term. Source: CME & Labyrinth Consulting Services, Inc.

Key Factors for Price Stabilization

A key factor for price stabilization is that markets no longer expect Russian oil exports to fall as much as initially feared following the Ukraine invasion. Russia exported an average of 7.5 mmb/d of crude oil and refined products in 2020 and 2021. Exports were boosted to an average of 8.1 mmb/d from October 2021 through March 2022, probably in anticipation of sanctions (Figure 3).

Exports were about -0.9 mmb/d lower in April than in January 2022 and EIA’s Short Term Energy Outlook projects a decrease to -1.4 mmb/d lower by year-end & -1.6 mmb/d lower by December 2023. If this is correct, Russian exports by the end of 2023 would be slightly more than at the depth of the Covid price collapse in mid-2020.

The take-away is that the loss of Russian liquids is expected to be about -0.34 mmb/d more than 2021 levels. It comes at a bad time for global supply but the loss is not nearly as serious as many analysts imagine when put into its proper context.

Figure 3. Figure 3. Russian exports were about -0.9 mmb/d lower in April than in January 2022 and expected to decrease to -1.4 mmb/d by year-end & -1.6 mmb/d by December 2023. Source: EIA STEO & Labyrinth Consulting Services, Inc.

Art Berman is anything but your run-of-the-mill energy consultant. With a résumé boasting over 40 years as a petroleum geologist, he’s here to annihilate your preconceived notions and rearm you with unfiltered, data-backed takes on energy and its colossal role in the world's economic pulse. Learn more about Art here.

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