Specious Argument

I reduced my January West Texas Intermediate oil price forecast by $2.50 per barrel: WTI prices should range between $52.50 and $62.50 per barrel. Last month, I expected WTI oil prices to remain in the high $50s or low $60s. Prices stayed predominantly in the upper $50s. With prices closing on Friday, December 26, at about $57.00 per barrel, it is not inconceivable that prices will dip below $55 during the month of January. I expect that WTI prices will range in the mid- to upper $50s throughout January.

In December, oil prices often had exaggerated moves in response to an announcement or development in the war in Ukraine or Venezuelan negotiations with the US. Otherwise, prices were relatively stable.

The overall bias appears to be bearish, though I do not share the extreme bearishness. Pundits have been warning for a long time about the tsunami of oil about to wash up on shore because of the extreme volumes of oil on water. Yet week after week, the EIA reports reasonable inventory values. Although it is not as important as it once was, the inventory levels at Cushing are low.

Let us have a look at some of the bearish commentary.

On December 9, the Financial Times published “Oil market faces ‘super glut’ as supply surge hits prices” (subscription required) where it stated:

The oil market faces a “super glut” next year as a burst of new supply collides with weakness in the global economy, one of the world’s biggest commodity traders has warned.

Saad Rahim, chief economist of Trafigura, said on Tuesday that new drilling projects and slowing demand growth were likely to weigh further on already depressed crude prices next year.

“Whether it’s a glut, or a super glut, it’s hard to get away from that,” Rahim said in remarks alongside the company’s annual results.

You can watch Trafigura’s comments on YouTube. Normally, I would embed the video, but the video owner requires viewing on YouTube itself.

On December 18, Bloomberg published “The World Is Awash With Oil and Prices Are Poised to Keep Falling” (subscription required). It stated:

Virtually all of the world’s biggest traders see the oil market in a state of oversupply early next year — the only question is by how much. The International Energy Agency estimates that output could exceed consumption by around 3.8 million barrels a day in 2026. Many traders predict smaller numbers than that, but storage levels are still expected to grow.

When that happens, oil prices usually fall. Global benchmark Brent crude is down 20% this year to trade near $60 a barrel. Trafigura, one of the world’s top commodities traders, says oil could be in the $50s through the middle of the year before recovering into the end of 2026.

“It’s a market where everybody agrees what’s going on,” Ben Luckock, global head of oil at the firm, said in an interview. “Prices should be lower, but they can’t be because there’s a war going on in Ukraine still.”

The IEA has a history of being overly bearish, so I tend to discount its forecasts. We have already discussed Trafigura. And regarding the war in Ukraine, I am not as confident that a cessation of hostilities will lead to lower oil prices on a sustained basis. Russia is already producing as much as it can. Ukraine has disabled several Russian oil refineries. When the war stops, Russia will be able to repair its refineries and produce more oil products, resulting in reduced oil exports. And with a cessation of hostilities, there will be a massive rebuilding effort underway in Ukraine and a more confident outlook in Europe generally. Decreased oil exports from Russia and increased economic activity in Ukraine and Europe may lead to a strengthening of oil prices after the initial Pavlovian reaction of lower oil prices once the fighting stops.

The article also discusses breakeven prices required by various OPEC countries to balance their budgets. Those breakeven prices are irrelevant because current supply and demand dictate oil prices. If oil is plentiful and expected to remain so, OPEC countries are not going to reduce oil production in hopes of raising prices. Cutting back oil production would simply allow others to gain market share. Instead, global supply and demand will dictate oil prices, and OPEC governments, like any other government, will need to adjust their budgets to align themselves with market realities.

Again on December 18, Eric Nuttall provided some optimism in an X post:

In his post, Nuttall seems to suggest that after 2026, the future for oil prices looks much better. I tend to agree with his assessment.

At around December 18, Paul Sankey in his Sankey Research channel on YouTube gave a great overview of the trends and developments:

Sankey was one of the more bearish voices, and I believe he is still quite bearish. I am not as bearish as him, nor am I bullish. In fairness to my comments about Sankey, I also did not think WTI prices would hit the $50s, and here we are in the $50s. In any event, Sankey’s YouTube is worth viewing.

Around December 19, Eric Nuttall provided his year-end review:

Unlike most others, Nuttall is far less bearish than others I have mentioned. He expects prices to rise through 2026. His YouTube is a must view.
Circa December 20, Bloomberg published the following YouTube “Oil Prices Poised to Keep Falling With World Awash in Supply.”

Aside from the bearish title, I did not glean much from this video. But it does show that the sentiment is extremely bearish.

On December 22, John Kemp posted on X that “investors have turned exceptionally bearish about the outlook for crude oil prices, anticipating a large accumulation of inventories next year, and shrugging off the impact of the U.S. embargo on oil exports from Venezuela.”

This extreme bearish positioning is actually bullish because most everyone who wanted to get bearish is already bearish.

At about December 23, CNBC published the following YouTube “Crude Oil Prices Fell 20% in 2025: What to Expect in 2026? | Commodity Champions.”

I did not learn much from this eleven-minute interview. The guest’s views seemed largely in line with IEA’s views.

So with all this bearish commentary, why am I not more bearish myself? Because despite all the bearish commentary of a glut of oil on water, we have not seen onshore inventories react. The EIA inventory reports show typical historical inventory numbers for this time of year. Am I bullish then because inventory numbers are reasonable and many of the pundits are bearish? No, I am neutral. While the oil markets rebalance themselves, I am expecting oil prices to remain around current levels.

Of course, significant geopolitical events can move oil prices beyond that range. A cessation of hostilities between Russia and Ukraine may temporarily depress prices, though I expect prices to bounce back once the reality of no increase of Russian oil exports sets in. Some make the argument that there is a lot of Russian oil on water, and once the sanctions are lifted, that will be a temporary release of oil to the markets. Perhaps, but even if true, it will be for a short duration only.

In summary, I expect WTI to predominantly range between $55-$60 per barrel, with $2.50 per barrel of wiggle room on either side. Despite all the bearish commentary, EIA inventory reports remain typical for this time of year.

I want to wish everyone a Happy, Healthy, and Prosperous New Year!

Disclosure: Short strangle (short calls and short puts) on WTI crude oil futures.

My December West Texas Intermediate oil price forecast remains unchanged from November: December WTI prices should range between $55 and $65 per barrel. Last month, I commented that I expected WTI oil prices to remain in the high $50s or low $60s. For the most part, I was correct. I expect the same for December.

There have not been any dramatic changes during the past month. Of course, in late November, the US administration began intensive talks with Ukraine and Russia in hopes of bringing an end to the war. My expectation is that talks will last past the New Year. Be warned, though, that no one, not even the participants themselves know how future discussions will unfold. Because the exchanges among the three parties—the US, Russia, and Ukraine—so far have shown little common ground, it will likely take a prolonged period to reach resolution, especially with the holiday season coming up.

And the US has taken aggressive action toward forcing out President Maduro from Venezuela. It has deployed a massive naval task force, including the aircraft carrier USS Gerald R. Ford, about a dozen navy ships, several thousand sailors and Marines, F-35 stealth jets, and more. The US has also closed Venezuela’s airspace, though unconfirmed by the FAA or ICAO, and has increased concerns of aerial enforcement. Aside from threatened brute force, the US has also employed diplomatic and economic measures against Venezuela. Because of the massive effort that has been expended so far, the US is almost certainly going to do something soon. If it were to simply walk away, that may send a dangerous signal to its adversaries. While I hope Maduro steps aside, I have no idea how this situation will play out.

The price effects from geopolitical developments are nearly impossible to assess in advance because there are simply too many unknowns. Looking back after the fact, the outcome may have seemed obvious. Going forward, however, it is nearly impossible.

I always enjoy viewing Paul Sankey’s YouTubes. Here is his latest:

Similarly, I enjoy Eric Nuttall’s YouTubes, and here is his latest:

As we approach the end of the year, I am curious to see if the pundits change their outlook for next year. We have been hearing a lot about oil on water and endless oversupply, yet oil prices have remained stable. If prices remain stable into year end, will that development cause others to reevaluate their outlooks?

While I expect oil prices to range between $55 and $65 per barrel, geopolitical events, good or bad, may sway oil prices from my range. As mentioned earlier, geopolitical events are impossible to assess in advance.

I wish everyone a Happy, Healthy, and Prosperous Holiday Season!

I expect November West Texas Intermediate (WTI) prices to be between $55 and $65 per barrel, which is a five dollar drop from my prior forecasts from July to October.

There were numerous factors that affected oil prices during October, including the following:

• Possible ceasefire between Russia and Ukraine
• An announced ceasefire between Israel and Hamas
• US regional banking flare-up
• US government shutdown
• IEA with an extremely bearish oil outlook
• China US tariff threats
• Oil-on-water glut
• US sanctions on Russian oil

Regarding the top two items, the ceasefires, there were press reports about both items attributing some of the recent softness to possible decrease in geopolitical risk. While there may be some merit to that argument, I do not place much emphasis on it. The unfortunate situation in Gaza has been ongoing for a while, and most did not worry about the conflict affecting oil prices.

As far as Russia is concerned, it has been producing aggressively throughout the last several years to help fund its economy and its war efforts. While some might believe that a ceasefire would reduce geopolitical risk, which is true, and ought therefore to reduce oil prices, I take a different view. Reduced tensions would allow for rebuilding and more confidence throughout Europe. More confidence means more economic activity, causing more demand for fossil fuels. As we know, the hoped-for ceasefire in Ukraine has not materialized and fighting continues.

For a few days in October, there were heightened fears of another US regional banking crisis. Fortunately, the cockroaches, a term Jamie Dimon used to describe potential hidden credit risks in the economy, never fully materialized. At least for now, this issue is not a problem.

The US government shutdown has not been a major theme in the oil markets, though it is contributing to some uncertainty.

In September, most thought that the US and China were making great strides toward a new tariff arrangement. And then in early October China indicated that it plans to expand its export controls over its rare earths. That caused a rupture in the tariff negotiations. In the past two weeks, both sides appear to be making efforts to repair some of the damage and the two leaders are due to meet later this week. As an indication of reduced tensions, The Wall Street Journal features an article today “Trump, Xi to Discuss Lowering China Tariffs for Fentanyl Crackdown” (subscription required) that suggest both sides are seeking a deescalation.

Should the US and China make concrete progress toward lessening of tensions and tariffs, that would increase confidence in both countries and lend more support to increased oil prices.

When the IEA published its bearish outlook, oil prices were knocked lower. The Financial Times published “Oil tumbles to five-month low on report of ‘large surplus’” (subscription required) where it mentioned that prices were expected to go even lower.

The recent surplus of crude comes after China and other economies had been increasing their stockpiles, with global observed inventories at a four-year high from January to August this year, according to the IEA.

Its estimate of an overhang is in contrast to the view of Opec, which said that “despite speculative activity in the futures market, near-term physical crude fundamentals remained broadly supportive of the market”, in a monthly report on Monday. It maintained its forecast for global oil demand in 2025 from the previous month.

Speaking at the Energy Intelligence Forum in London, Ben Luckock, the head of oil trading at Trafigura, said he expected prices could fall below $60 a barrel before rallying.

Luckock is referring to Brent oil prices, which typically exceed WTI oil prices anywhere from $2 to $4 per barrel.

The Wall Street Journal published “IEA Forecasts Bigger Oil Surplus, With Global Inventories Soon Set to Rise” (subscription required) where it mentioned a forecasted oil supply growth of three million barrels a day.

The Paris-based organization now forecasts oil-supply growth of 3 million barrels a day this year and 2.4 million the next, from earlier estimates of 2.7 million and 2.1 million barrels a day, respectively. Global demand, however, is expected to grow by 710,000 barrels a day and 699,000 barrels a day over the periods.

“The oil market has been in surplus since the start of the year, but stock builds have so far been concentrated in crude in China and gas liquids in the U.S.,” the IEA said.

Middle Eastern oil production surged by September as OPEC+ countries ramped up output. However, seasonal demand remained subdued, leaving the region with a larger surplus of crude oil available for export. This, combined with robust oil flows from the Americas, resulted in a massive buildup of oil in floating storage or in transit—the largest increase since the Covid-19 era.

The topic of oil in floating storage or oil-on-water has been debated endlessly on X. Some point to it as an indication of a large, impending glut of oil, while others believe it has been overplayed in the media and by some traders.

Here is an X post by Javier Blas of Bloomberg showing the buildup of crude-in-transit or oil-on-water:

Eric Nuttall shares his thoughts toward the latter part of his recent YouTube:

After listening to Dr. Anas Alhajji on his X Space, I became convinced that the oil-on-water issue is overblown. Normally, his X Space presentations are for subscribers only, but this one is open to the public. Some users encounter audio difficulties when listening using their computers and have better success listening on their mobile devices. Although his X Space lasts nearly two hours, it is worth listening to if you are serious about the oil markets.

Regarding the last topic of US sanctions on Russian oil, many believe that Russia will find a way around the sanctions, just like they and Iranians have on previous rounds of sanctions. Given the widespread skepticism of its effect, I expect that Russian oil sanctions may have some effect but will not severely curtail Russian oil exports.

Javier Blas posted on X:

And the Bloomberg article he refers to “Russia Seeks Oil Sanctions Workaround to Offset Hit to Budget” (subscription required) states the following:

Russia anticipates a hit to the state budget from US sanctions against the country’s two largest oil producers over the war in Ukraine, though officials say they’re confident they’ll find ways to mitigate the impact of the measures.

Losses are inevitable, though hard to quantify at present, after US President Donald Trump’s administration blacklisted Rosneft PJSC and Lukoil PJSC, according to an official close to the Kremlin. Russia will deploy its network of oil traders and shadow tanker fleet to limit the financial impact, the official said, asking not to be identified discussing sensitive issues.

Dr. Anas Alhajji is even more severe in his criticism of the effects of the sanctions in his X Space.

In November, I expect EIA inventory builds to occur, as they do almost every year at this time. The questions are not whether there are builds but whether the builds are larger than normal and whether global inventories are larger than normal. If the answer to both questions is that builds are seasonally normal or smaller, then prices should remain relatively stable.

Considering all this information, I do not see much upside to WTI oil prices. I strongly doubt it gets past $65 on the upside. And although it recently was in mid $50s, I tend to think that was during a wave of extreme pessimism when several stories were conspiring against oil. My expectation is that WTI oil prices will spend most of November in the high $50 to low $60s. As stated at the outset, my expected range is between $55 and $65 for November.

Disclosure: Short strangle (short calls and short puts) on WTI crude oil futures.

I expect October West Texas Intermediate (WTI) prices to remain between $60 and $70 per barrel, which was also my forecast range for July through September. I had expected the prices in September to stay in the lower half of that range, which turned out to be accurate.

The pessimistic mood in oil is slowly shifting. On August 18, The New York Times featured an article “Will Oil Demand Peak Soon? Trump Administration Doesn’t Want to Hear It” (subscription required). In that article, it provided a graphic of differing opinions about peak oil.

Many believed that OPEC and Exxon were wrong, and the others were right. Now, the tide is shifting.

On September 10, Javier Blas from Bloomberg wrote an article “The Myth of Peak Fossil-Fuel Demand Is Crumbling” (subscription required). In this article, he discussed the implications of a draft copy of the IEA’s upcoming annual report. The upshot is that peak oil is not happening as quickly as many expected.

And later in September, the IEA issued a release of its report “The Implications of Oil and Gas Field Decline Rates” (PDF, publicly available).

A key paragraph from the executive summary is as follows:

Alongside the observed rate declines that are derived from field production histories, it is possible to estimate the natural rate declines that would occur if all capital investment were to stop. These declines are even steeper. If all capital investment in existing sources of oil and gas production were to cease immediately, global oil production would fall by 8% per year on average over the next decade, or around 5.5 million barrels per day (mb/d) each year. This is equivalent to losing more than the annual output of Brazil and Norway each year. Natural gas production would fall by an average of 9%, or 270 bcm, each year, equivalent to total natural gas production from the whole of Africa today.

The annual report should be issued soon. I expected those who sided with Exxon and OPEC to be vindicated.

On September 19, the Financial Times published an article “Oil market brushes off predictions of supply glut” (subscription required).

Predictions that the world will soon be awash with oil are failing to dent crude prices, with some analysts saying China’s quiet stockpiling of reserves is staving off a major market downturn.

Big banks, energy agencies and analysts are almost universally forecasting that excess supply could push global crude prices towards $50 a barrel or lower next year.

But Brent crude, the international benchmark, is still trading at about $67 a barrel, little changed on where it was in late June, while futures markets are not pointing to a coming glut.

Although big banks and some analysts have been predicting lower prices, that has not happened yet, and it may not happen.

On September 24, the Financial Times also published an article “US shale bosses decry ‘chaos’ in Donald Trump’s energy policy” (subscription required).

Donald Trump’s tariffs and drive to slash oil prices are “kneecapping” the US shale sector, chilling investment and risking reprisal against the industry, executives have warned.

Immediately after entering the White House, the president declared a “national energy emergency”, pledging to “drill, baby, drill” and pass on lower energy costs for consumers.

But bosses told a survey by the Federal Reserve Bank of Dallas that the administration’s support for low prices, levies on crucial goods and chaotic decision-making is scaring off investors and increasing costs. The report is often a source of surprisingly frank assessments of US energy policy because executives are allowed to provide responses anonymously.

Then on September 27, The Wall Street Journal published an article “The Slow Demise of Russian Oil” (subscription required).

Since the start of the war in Ukraine, Moscow has kept oil production and exports relatively stable by focusing on the maintenance of existing fields rather than the exploration of new ones. But the longer-term outlook is bleak. Up to one-third of Russia’s budget revenue comes from the profits of the energy sector and that proportion is likely to shrink as production slows.

Even before the war, many of Russia’s Soviet-era fields, mainly in Western Siberia and the Volga-Urals region, were starting to run low, leaving oil companies to turn to the harder-to-recover crude in its Arctic and Siberian fields.

To improve their odds, Russian majors planned to tap shale formations in Siberia using techniques developed in Texas and North Dakota but the war prevented them. Sanctions prohibited access to the necessary extraction technology and the government raised taxes on oil companies to shore up its war effort. Workers were enticed to the front by lucrative packages for soldiers, while others of fighting age have died in battle or left the country, all factors creating shortages of skilled specialists in the industry.

In mid-September, Eric Nuttall created a new YouTube. You can hear his comments regarding the IEA.

And here is a recent X post:

Paul Sankey of Sankey Research created two new YouTubes in September. Even though I have been more bullish than Sankey, I have tremendous respect for him and appreciate his videos. His videos seem as though he is having a friendly conversation with his audience.

Even though I typically provide a one-month forecast, I expect WTI oil prices to largely remain above $60 per barrel throughout the rest of the year. If WTI oil prices do break $60, I expect it to be short lived with a minimum price of $57.50. Am I absolutely positive, no. There are too many variables that affect oil prices.

Last month, I mentioned that I was surprised by the strength of the equity prices of oil companies. As more investors come to believe that the oil price narrative is changing, they are placing a higher valuation on oil companies. Hence, oil company valuations have been increasing even though oil prices are relatively depressed.

In summary, I believe the bearish narrative on oil prices is changing from extreme bearishness to a holding pattern for the next several months. Even more importantly, peak oil demand has been pushed out from sometimes in the late 2020s to possibly 2050 or beyond. The change in the oil price outlook has affected oil companies’ equity valuations.

Disclosure: Short strangle (short calls and short puts) on WTI crude oil futures.