Key Takeaways:
- Crude oil prices have declined since June 2022.
- The higher demand and “bullish fundaments” could remedy the price.
- A report from the Centre for Research in Energy and Clean Air, Russian oil export is recovering and could push prices higher.
YEREVAN (CoinChapter.com) — The oil market has suffered a downturn due to growing recession fears. As of May 2023, oil prices have dipped 40% since peaking in June 2022, despite growing demand and depleting number of oil inventories.
However, the divergence between fundamentals and the current sentiment might offer a bullish window for investors in oil-related equities.
Forward oil price falls short of consensus estimates – what does it mean?
Furthermore, the bearish sentiment has resulted in a gap between the forward oil price, i.e., the predetermined delivery price, and the consensus estimates, the average estimates by securities analysts.
According to banking giant Goldman Sachs, the forward oil price implied by futures markets is currently 30% lower than consensus estimates, a 98th percentile consensus/futures gap throughout history. In other words, it beats 98% of all consensus/future gaps.
Bison Interests, an investment firm focused on public energy equities, asserted that such a gap has historically benefited oil prices.
While we are not relying on this, it is worth considering what has happened historically when the futures curve has been this far below consensus expectations—oil prices rose substantially. History doesn’t repeat, but it does rhyme.
reported Bison Interests
Oil Market Report for May sees heightening demand.
The monthly Oil Market Report (OMR) for May 2023 reiterated bullish expectations. However, experts also attributed the arrested oil prices to the growing recession fears, noting the combined negative effect of “muted industrial activity and higher interest rates.”
The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year when demand is expected to eclipse supply by almost 2 mb/d.
read the report.
However, as the Federal Reserve eases up on its hawkish quantitative tightening policies in the future, the oil market could regain momentum. According to Bison Interests, prior periods marked with looser Fed policy have coincided with higher oil prices.
Moreover, the sanctions on Russian oil have been the key item in the oil market news for over a year.
Also read: Joe Biden and Kevin McCarthy Hold Talks on Debt Ceiling Crisis to Avert Default and Economic Catastrophe.
An analysis published May 24 by the Centre for Research in Energy and Clean Air, an independent Finnish think tank, found that Russia’s revenues from oil exports have recovered from levels reached in January and February, putting a damper on the G7-enforced oil price cap.
The report findings reiterate the heightened demand, which could lead to price recovery in the coming quarter.
